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
News
election 2015The 10 best quotes of the campaign
News
A caravan being used as a polling station in Ford near Salisbury, during the 2010 election
election 2015The Independent's guide to get you through polling day
News
people
Voices
David Blunkett joins the Labour candidate for Redcar Anna Turley on a campaigning visit last month
voicesWhat I learnt from my years in government, by the former Home Secretary David Blunkett
ebooks
ebooksA celebration of British elections
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

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

iJobs Job Widget
iJobs Money & Business

Ashdown Group: Editor-in-chief - Financial Services - City, London

£60000 - £70000 per annum + benefits : Ashdown Group: A highly successful, glo...

Ashdown Group: Junior Application Support Analyst - Fluent German Speaker

£25000 - £30000 per annum + benefits: Ashdown Group: A global leader operating...

Guru Careers: Management Accountant

£27 - 35k + Bonus + Benefits: Guru Careers: A Management Accountant is needed ...

Guru Careers: Project Manager / Business Analyst

£40-50k + Benefits.: Guru Careers: A Project Manager / Business Analyst is nee...

Day In a Page

General Election 2015: ‘We will not sit down with Nicola Sturgeon’, says Ed Balls

'We will not sit down with Nicola Sturgeon'

In an exclusive interview, Ed Balls says he won't negotiate his first Budget with SNP MPs - even if Labour need their votes to secure its passage
VE Day 70th anniversary: How ordinary Britons celebrated the end of war in Europe

How ordinary Britons celebrated VE Day

Our perception of VE Day usually involves crowds of giddy Britons casting off the shackles of war with gay abandon. The truth was more nuanced
They came in with William Caxton's printing press, but typefaces still matter in the digital age

Typefaces still matter in the digital age

A new typeface once took years to create, now thousands are available at the click of a drop-down menu. So why do most of us still rely on the old classics, asks Meg Carter?
Discovery of 'missing link' between the two main life-forms on Earth could explain evolution of animals, say scientists

'Missing link' between Earth's two life-forms found

New microbial species tells us something about our dark past, say scientists
The Pan Am Experience is a 'flight' back to the 1970s that never takes off - at least, not literally

Pan Am Experience: A 'flight' back to the 70s

Tim Walker checks in and checks out a four-hour journey with a difference
Humans aren't alone in indulging in politics - it's everywhere in the animal world

Humans aren't alone in indulging in politics

Voting, mutual back-scratching, coups and charismatic leaders - it's everywhere in the animal world
Crisp sales are in decline - but this tasty trivia might tempt back the turncoats

Crisp sales are in decline

As a nation we're filling up on popcorn and pitta chips and forsaking their potato-based predecessors
Ronald McDonald the muse? Why Banksy, Ron English and Keith Coventry are lovin' Maccy D's

Ronald McDonald the muse

A new wave of artists is taking inspiration from the fast food chain
13 best picnic blankets

13 best picnic blankets

Dine al fresco without the grass stains and damp bottoms with something from our pick of picnic rugs
Barcelona 3 Bayern Munich 0 player ratings: Lionel Messi scores twice - but does he score highest in our ratings?

Barcelona vs Bayern Munich player ratings

Lionel Messi scores twice - but does he score highest in our ratings?
Martin Guptill: Explosive New Zealand batsman who sets the range for Kiwis' big guns

Explosive batsman who sets the range for Kiwis' big guns

Martin Guptill has smashed early runs for Derbyshire and tells Richard Edwards to expect more from the 'freakish' Brendon McCullum and his buoyant team during their tour of England
General Election 2015: Ed Miliband's unlikely journey from hapless geek to heart-throb

Miliband's unlikely journey from hapless geek to heart-throb

He was meant to be Labour's biggest handicap - but has become almost an asset
General Election 2015: A guide to the smaller parties, from the the National Health Action Party to the Church of the Militant Elvis Party

On the margins

From Militant Elvis to Women's Equality: a guide to the underdogs standing in the election
Amr Darrag: Ex-Muslim Brotherhood minister in exile still believes Egypt's military regime can be replaced with 'moderate' Islamic rule

'This is the battle of young Egypt for the future of our country'

Ex-Muslim Brotherhood minister Amr Darrag still believes the opposition can rid Egypt of its military regime and replace it with 'moderate' Islamic rule, he tells Robert Fisk
Why patients must rely less on doctors: Improving our own health is the 'blockbuster drug of the century'

Why patients must rely less on doctors

Improving our own health is the 'blockbuster drug of the century'