(FORTUNE Magazine) – Viacom

Viacom, apparently, is dedicated to funny business. And we don't mean that CEO Sumner Redstone is cooking the books. After 12 years of splitting ownership of Comedy Central with AOL Time Warner (parent of FORTUNE's publisher), the media giant is making a hefty wager on laughs by offering to buy out its partner's 50% share for $1.2 billion in cash. Viacom likes the way the network's demographics tie in with its MTV, VH1, and Nickelodeon.

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Comedy Central

The once-struggling comedy channel is now established as the home of popular South Park and The Daily Show With Jon Stewart. So AOL is hardly unloading a loser. "I don't think selling this would be their first choice because they are active in cable networks," says Barrington analyst James Goss. "But this is one of the things they felt they could sacrifice." The sale is clearly more than a token effort by AOL to reduce its $26 billion in debt.

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What it means for you

Compared with recent industry transactions--like NBC's acquisition of Bravo in 2002--Redstone paid full price, analysts say. But Comedy Central still appears to be a smart buy. "On the surface it looks expensive," says Smith Barney analyst Jill Krutick. "But it will be accretive fairly quickly." Tax benefits as a result of the transaction could reach as high as $300 million over 15 years. And analysts are confident Viacom can streamline operations for more savings, as it did successfully when it bought BET in 2000. If so, that and a little laughter will be good medicine for investors. --Ellen Florian