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A Marriage Made By Gump

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If Sumner M. Redstone ever makes a movie out of his proposed merger with Blockbuster Entertainment Corp., he should could call it The Deal That Wouldn't Die. On Aug. 23, Blockbuster's board of directors voted to recommend that shareholders approve its $7.2 billion merger with Redstone's company, Viacom Inc. The move resuscitates a deal that has been declared dead more often than Jason.

The deal was rescued, at least in part, by the hit summer movie Forrest Gump. Blockbuster Chairman H. Wayne Huizenga had been disparaging the merger ever since Viacom won its battle for Paramount Communications Inc. in February. His main gripe: that his shareholders are to be paid mostly in Viacom Class B stock, which had fallen from $42 to as low as $21 because of the debt Redstone took on to pay for Paramount. But now, propelled by Gump, Viacom has rebounded to $34. That gives investors a slim pre-mium over Blockbuster's $6.6 billion market value.

Of course, Blockbuster shareholders could still nix the merger when they vote on Sept. 29. The stocks of both companies fell a bit on news of the board action. Kenneth J. Enright, portfolio manager at Massachusetts Financial Services Co., which owns 900,000 shares, wants assurances that Viacom will invest Blockbuster's rich cash flow in new businesses, rather than use it to pay down debt. And he wonders if Blockbuster's executives will have any role in the new company.

Viacom is eager to answer both questions. Redstone says Blockbuster will generate more cash flow than he expected, which would allow him to proceed with two projects: a chain of Paramount studio stores, and a global Nickelodeon channel. Expanding Nick in Asia and Europe could cost $200 million over three or four years. Executives close to Viacom say they expect Blockbuster President Steven R. Berrard to stick around after the merger. But insiders say Huizenga probably won't be offered a top operating job at Viacom. So he may end up leaving.

Meanwhile, insiders say Viacom is within days of a deal to sell Madison Square Garden for at least $1 billion. Viacom's talks with Tele-Communications Inc. about selling its cable systems are going more slowly. Clinching both deals soon would really help Viacom: Redstone could use the proceeds to trim $1 billion or more off its $10 billion debt. And he could assure Blockbuster shareholders that he wants their company for its underlying value--not just as a checkbook to pay for Paramount.Mark Landler in New York and Gail DeGeorge in Miami

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