On the morning Barry Diller confirmed his merger negotiations with CBS Inc., Viacom Inc. President Frank J. Biondi Jr. sounded like a sports fan handicapping the NBA draft. Who might step forward to break up Diller's cozy deal? Perhaps Walt Disney Co., mused Biondi, leaning back in his chair. Or maybe beverage giant Seagram Co. "No, they can't," he added quickly. "They're Canadian."

Although Biondi took pains not to criticize the merger, a competing bid for CBS would be poetic justice to Viacom's executives. Biondi and his boss, Chairman Sumner M. Redstone, have spent the last five months dealing with the fallout from their own merger-turned-takeover battle for Paramount Communications Inc. The agent of their misery was the same Barry Diller who now hopes to merge his home shopping service, QVC Inc., with CBS.

"ALL-VIACOM SHOW." Redstone and Biondi don't need to be reminded of the wages of war: Diller added $2 billion to the price Viacom ended up paying for Paramount. And the company's crown jewel, Paramount Pictures Corp., languished during the epic struggle. Several Hollywood talent agents say they steered projects away from the studio because of all the takeover turmoil. With just eight feature films released through July 4, Paramount's box-office market share ranked ahead of only MGM among major studios.

In one way, however, the fierce battle has actually made Viacom's job easier. Because Redstone acquired Paramount in a bidding war, he hasn't had to maintain the pretense that this is a merger of equals. Already, Viacom has largely replaced Paramount's corporate managers with its own team. "It's turning out to be an all-Viacom show," says one executive familiar with the company. "But that's because the corporate cultures are so different."

As Viacom prepares for its annual meeting July 7, Redstone is putting perhaps the final imprimatur on his takeover. He is set to announce that the combined enterprise will carry only the Viacom name, even though Paramount is by far the larger component. "We don't want to walk into the trap of creating two companies," Redstone explains. "Paramount is a very valuable franchise, but so is MTV."

Such self-confidence typifies Redstone's approach to Paramount. By all accounts, he has moved swiftly--even remorselessly--to digest his $10 billion prize. Viacom has put several of Paramount's coveted assets, including Madison Square Garden, on the block. Jonathan Dolgin, a bare-knuckles executive whom Redstone recruited from Columbia Pictures in March, is overhauling the studio. And with Redstone's approval, Biondi fired Simon & Schuster's powerful chairman, Richard E. Snyder.

Though the most notable, Snyder is only one of several Paramount executives who have departed in recent weeks. Chief Financial Officer Ronald L. Nelson left after being passed over for a similar job at Viacom. And multimedia chief Keith E. Schaefer resigned to start his own technology company after Viacom's new-media chairman, Edward D. Horowitz, asked him to relocate from Silicon Valley to the company's New York headquarters.

Redstone insists that many Paramount executives are adjusting well to Viacom. But he acknowledges that Paramount was a very different company. For one thing, it had an all-powerful boss, Martin S. Davis, and a cadre of division chiefs who communicated little with one another. Shortly after the takeover, for example, Redstone says he assembled the top executives of both companies for a series of briefings. At the meeting, Sherry Lansing, who continues to run Paramount's motion picture group, confided to Redstone that she had never heard a Simon & Schuster presentation.

Viacom, by contrast, is run by a team of four managers: Redstone, Biondi, and two executive vice-presidents, Thomas E. Dooley and Philippe P. Dauman. Dooley and Dauman, who are only 37 and 40, respectively, handle the nuts and bolts of the consolidation. Dauman, who was Viacom's outside counsel before joining the company in 1993, also functions as a trustee of Redstone's estate. The way the estate is structured, Dauman could be considered for Viacom's chairmanship in the event of Redstone's death.

Despite this potentially disruptive arrangement, insiders say the four executives operate far more cohesively than Paramount's management. "Paramount's culture wasn't as open as Viacom's," says Dooley, "There aren't a lot of memos flying around at Viacom." Snyder, for one, operated Simon & Schuster in an insular fashion, according to Viacom executives. And Schaefer, they say, bridled at the notion of collaborating with Viacom. He says he preferred the autonomy that Paramount offered him.

JUMP START. The impact of Viacom's management changes has ranged widely. At S&S, Jonathan Newcomb, who rose from president to chairman, seems determined to continue Snyder's overseas expansion and technological innovation. After some initial caterwauling, S&S's authors and editors also seem to be staying put. Under Horowitz' direction, though, Paramount's technology group is scrapping its practice of taking equity stakes in promising multimedia ventures. Instead, Horowitz wants the group to look for more immediate multimedia applications for Viacom's and Paramount's entertainment products.

So far, Wall Street is pleased with Redstone's tough style. After falling from 593/8 to 213/4 during the battle, Viacom's Class B stock has risen recently to 315/8. The acquisition left Redstone lumbering under $9 billion in debt and preferred stock. Yet analysts and shareholders are impressed by Redstone's willingness to whittle that down by selling assets. Viacom seems to be getting decent prices, too. The deadline for a first round of bids for the Garden was June 28. Sources say the bidders, which include Liberty Media Corp., New York Times Co., and Loews Corp., are offering from $750 million to $1 billion. At this rate, he adds, Viacom should have no trouble meeting its pledge to reduce its debt by $2 billion within 36 months.

To ease the burden, though, Redstone must also jump-start Paramount's operations. The studio lost $35 million in the first quarter of 1994, on revenues of $217 million, because of such big-budget flops as Blue Chips. John Tinker, a media analyst at Furman Selz Inc., figures that Viacom could still generate $1.4 billion in operating cash flow in 1994, a 24% pro-forma gain over 1993. But Tinker's estimate depends on MTV Networks' producing 33% growth. In 1993, MTV's earnings from operations jumped 39%.

Dolgin is doing his part to boost earnings at the studio. He plans to hike production to 25 films next year, from 15 in 1993. And he wants to obtain outside financing for movies--something the studio had eschewed. In April, Dolgin signed a deal with actor-producer Michael Douglas to distribute 12 films. Hollywood sources say Dolgin is also cutting costs 5% to 10% across the board. He says only: "There are two ways of looking at a film. Is it good? Will it make money? We weren't doing enough of the latter."

Happily for Dolgin, Paramount may release some films this summer that meet both tests. Forrest Gump, a Zelig-like story with Tmm Hanks in the title role, has won critical raves prior to its July 6 opening. And Clear & Present Danger, starring Harrison Ford, continues the lucrative series of Tom Clancy suspense films.

MECCA BUCKS. Despite his background as a movie-theater owner, Redstone says he doesn't interfere with Dolgin and rarely travels to the Paramount lot. Indeed, he says his only recent contribution was to suggest that Paramount promote Forrest Gump especially heavily to compensate for its offbeat title. "The name is not something easy like Shoot 'em Up or Speed Through the Jungle," laughs Redstone.

The 71-year-old Bostonian is also not getting overly attached to New York's sports mecca, the Garden. He says he turned up at every home game to cheer the New York Rangers and Knicks as they battled for their league championships: "But I have no second thoughts about selling it, as long as we get the price we want." He is peddling other choice assets, too, such as Paramount's music-publishing business. And Redstone is negotiating a complex deal with cable titan John C. Malone to combine the West Coast cable systems of Viacom and Tele-Communications Inc. and their respective pay-cable services.

Redstone, who flies on commercial airlines, even plans to sell Paramount's two corporate jets. But he hasn't eradicated every vestige of the old Paramount. The frugal Redstone used to walk or take taxicabs to work. Now, he rides in a car driven by Marty Davis' former chauffeur.

      The Paramount Communications acquisition turns Viacom into a heavily indebted giant
                          Pre-merger*     Post-merger**
      REVENUES (billion)      $2.01   $8.0
      OPERATING INCOME        $0.5    $1.3
      NET DEBT                $2.4    $9.3
      INTEREST COVERAGE       3.6     2.5
      STOCK PRICE PER SHARE   $59     $31
      * 1993 results  **Estimated pro-forma 1994 results.  Operating income represents earnings before interest, depreciation, taxes, and amortization.  Interest coverage represents the number of times cash flow covers interest payments.      DATA: FURMAN SELZ INC.
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