A $5bn bid that has Wall Street worried

Westinghouse's interest in CBS has left analysts cold. Michael Marray reports

THE CBS chairman, Laurence Tisch, has spent a lot of time over the past few years denying that the television network is for sale. His problem is that hardly anybody believes him, and the latest approach from the industrial conglomerate Westinghouse Electric has convinced many on Wall Street that Mr Tisch is finally about to sell out.

Westinghouse has sounded him out over an $80 (pounds 50) per share all-cash offer, which would put a price tag of around $5bn on CBS. Last week, Westinghouse was trying to line up support from commercial banks such as Chemical Bank and JP Morgan, both of which are big lenders into merger and acquisition deals.

The desirability of a take-over of CBS by Westinghouse is, however, being widely questioned. Some shareholders at the conglomerate want to see a further slimming down of the company, and a reduction in its debt levels rather than a highly leveraged acquisition. And analysts who track CBS worry that Westinghouse may not have the right credentials to turn the troubled network around.

At one time, CBS was known in industry circles as the Tiffany Network, because of its dominance of American television. But recent years have seen it slump into third place, behind NBC and ABC. New hit television series and fresh ideas are badly needed, especially when Rupert Murdoch's Fox Television is rapidly gaining ground as the fourth network and the proliferation of cable channels is stealing viewers away from all the networks.

Disillusionment with Mr Tisch, who assumed control of CBS in 1986, is rife among employees. Eighteen months ago CBS was badly caught out by Fox , which swooped to buy the rights to broadcast American football games within the National Football Conference. The loss dealt a severe blow to CBS ratings, and despite popular shows which have included David Letterman, Northern Exposure, Murphy Brown, and Dr Quinn, Medicine Woman, there have been no recent CBS blockbusters. Sweeping changes are due for the approaching autumn season.

Westinghouse, which is based in Pittsburgh, has interests in power generation, defence electronics and refrigeration products. Its existing broadcasting activities are held in the Group W subsidiary, which owns five television stations in cities including Boston and San Francisco, four of which are CBS affiliates. By adding CBS-owned stations to the Group W stations, 32 per cent of Americans would be within its combined reach. This is actually higher than the 25 per cent maximum allowed under current regulations, but moves toward deregulation in Washington DC are expected to result in these ceilings being raised. Both CBS and Westinghouse also have a powerful presence in radio.

Group W clearly has lots of television industry expertise to bring to the table. However, it is not a leading player in creating programming, and this could be a big drawback, given the need to inject new life into the CBS viewing schedule.

From a financial point of view, there are also concerns about the level of debt that Westinghouse would have to take on to buy CBS. The Westinghouse balance sheet has been hobbled with excessive debt ever since a disastrous 1980s foray into financial services, and over the past few years the company has been conducting regular asset sales in order to reduce its leverage.

Last week, the rating agency Standard & Poor's reacted to the reports of a potential deal by placing its rating of Westinghouse on credit watch - with negative implications. An S&P analyst noted that the current rating reflects expectations of more debt reduction, commenting that "a debt- financed acquisition of CBS would result in a reversal of progress toward debt reduction targets and would cause debt leverage to remain at aggressive levels for an extended period."

For these reasons, some Westinghouse shareholders have concluded that a run at CBS is not a good idea, and that $80 a share is too expensive. So does this mean that Mr Tisch should sell? "If someone offered me $80 and I was Larry Tisch, I'd say thank you and take the money," says Dennis McAlpine, analyst with the New York brokerage Josephthal Lyon & Ross. He adds that Westinghouse "would have to sell something big" in order to reduce its debt load after an acquisition.

CBS shares soared $4.125 to $69.75 last Monday, as word of the deal first entered the market. They closed the week at $75.25. This is still below the $80 bid level being talked about, which indicates that arbitrageurs on Wall Street are still not fully convinced a deal will be closed. But the market does believe that Larry Tisch is a willing seller - if the price is right.

Start your day with The Independent, sign up for daily news emails
Arts and Entertainment
Supporting role: at the Supreme Court, Rhodes was accompanied by a famous friend, the actor Benedict Cumberbatch
booksPianist James Rhodes on the extraordinary legal battle to stop the injunction of his memoirs
Arts and Entertainment
Jesuthasan Antonythasan as Dheepan
filmDheepan, film review
Steven Gerrard scores for Liverpool
Arts and Entertainment
Bob Dylan
ebookA unique anthology of reporting and analysis of a crucial period of history
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Guru Careers: Software Developer / C# Developer

£40-50K: Guru Careers: We are seeking an experienced Software / C# Developer w...

Neil Pavier: Management Accountant

£45,000 - £55,000: Neil Pavier: Are you looking for your next opportunity for ...

Sheridan Maine: Commercial Accountant

£45,000 - £55,000: Sheridan Maine: Are you a newly qualified ACA/ACCA/ACMA qua...

Laura Norton: Project Accountant

£50,000 - £60,000: Laura Norton: Are you looking for an opportunity within a w...

Day In a Page

Sun, sex and an anthropological study: One British academic's summer of hell in Magaluf

Sun, sex and an anthropological study

One academic’s summer of hell in Magaluf
From Shakespeare to Rising Damp... to Vicious

Frances de la Tour's 50-year triumph

'Rising Damp' brought De la Tour such recognition that she could be forgiven if she'd never been able to move on. But at 70, she continues to flourish - and to beguile
'That Whitsun, I was late getting away...'

Ian McMillan on the Whitsun Weddings

This weekend is Whitsun, and while the festival may no longer resonate, Larkin's best-loved poem, lives on - along with the train journey at the heart of it
Kathryn Williams explores the works and influences of Sylvia Plath in a new light

Songs from the bell jar

Kathryn Williams explores the works and influences of Sylvia Plath
How one man's day in high heels showed him that Cannes must change its 'no flats' policy

One man's day in high heels

...showed him that Cannes must change its 'flats' policy
Is a quiet crusade to reform executive pay bearing fruit?

Is a quiet crusade to reform executive pay bearing fruit?

Dominic Rossi of Fidelity says his pressure on business to control rewards is working. But why aren’t other fund managers helping?
The King David Hotel gives precious work to Palestinians - unless peace talks are on

King David Hotel: Palestinians not included

The King David is special to Jerusalem. Nick Kochan checked in and discovered it has some special arrangements, too
More people moving from Australia to New Zealand than in the other direction for first time in 24 years

End of the Aussie brain drain

More people moving from Australia to New Zealand than in the other direction for first time in 24 years
Meditation is touted as a cure for mental instability but can it actually be bad for you?

Can meditation be bad for you?

Researching a mass murder, Dr Miguel Farias discovered that, far from bringing inner peace, meditation can leave devotees in pieces
Eurovision 2015: Australians will be cheering on their first-ever entrant this Saturday

Australia's first-ever Eurovision entrant

Australia, a nation of kitsch-worshippers, has always loved the Eurovision Song Contest. Maggie Alderson says it'll fit in fine
Letterman's final Late Show: Laughter, but no tears, as David takes his bow after 33 years

Laughter, but no tears, as Letterman takes his bow after 33 years

Veteran talkshow host steps down to plaudits from four presidents
Ivor Novello Awards 2015: Hozier wins with anti-Catholic song 'Take Me To Church' as John Whittingdale leads praise for Black Sabbath

Hozier's 'blasphemous' song takes Novello award

Singer joins Ed Sheeran and Clean Bandit in celebration of the best in British and Irish music
Tequila gold rush: The spirit has gone from a cheap shot to a multi-billion pound product

Join the tequila gold rush

The spirit has gone from a cheap shot to a multi-billion pound product
12 best statement wallpapers

12 best statement wallpapers

Make an impact and transform a room with a conversation-starting pattern
Paul Scholes column: Does David De Gea really want to leave Manchester United to fight it out for the No 1 spot at Real Madrid?

Paul Scholes column

Does David De Gea really want to leave Manchester United to fight it out for the No 1 spot at Real Madrid?