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Viacom pays $2.3B for BET
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November 3, 2000: 6:05 p.m. ET
Media giant buys BET, making Johnson second-largest individual shareholder
By Staff Writer Luisa Beltran
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NEW YORK (CNNfn) - Media conglomerate Viacom Inc. agreed Friday to acquire privately held BET Holdings II Inc., the parent company of Black Entertainment Television, for more than $2.3 billion in stock, gaining access to the fast-growing black-oriented media market.
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 Robert Johnson, Chairman and CEO of BET Holdings, chats with CNNfn about the deal. |
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The acquisition, which includes the assumption of nearly $600 million in BET debt, brings together the top black-oriented cable network with the second-largest media company in the world, whose holdings include MTV, CBS and United Paramount Network. The deal also provides a way for Liberty Media, which held a 35 percent stake in BET before the acquisition, to gain a stake in Viacom.
The transaction gives Viacom entry into the coveted black market, which is growing faster than the general market, Viacom executives said.
"This is a historic day for BET," said BET chairman and majority owner Robert L. Johnson on a conference call open to the media. "This is an opportunity for BET to align its brand with the premium brand in the world [of Viacom]."
Click here to chart Johnson's journey from an unknown to a media baron
Black Americans comprise 13 percent of the population, but only 1 percent of the market targets the group. Advertising spending targeting blacks is growing at 15 percent, faster than for the general market.
"When [they] come together you combine the assets of Viacom with the strong ethnic targeting capabilities of BET to serve one of the fastest-growing markets," Johnson told CNNfn. "This market has tremendous upside."
 The deal also propels Johnson to Viacom's second-largest shareholder, behind CEO Sumner Redstone but past Mario Gabelli, founder of Gabelli Asset Mangement (GBL: Research, Estimates). However, Johnson, who currently serves on numerous boards of directors, did not secure a post on Viacom's board.
"If Mel asked me to be on the board I would consider it," Johnson said. "But I'm pretty boarded out."
New York-based Viacom will assume about $570 million in debt, $130 million in working capital and will swap roughly $2.3 billion in stock, or about 40 million shares, based on Viacom's closing price Thursday. The final exchange ratio will be determined immediately before the purchase closes, a Viacom spokesman said.
The $2.3 billion purchase includes nearly all of BET except for the company's money-losing ventures, including some movie production units and the restaurants, which are not included in the acquisition.
Check out PaineWebber media analyst Christopher Dixon's take on the deal
BET Chairman Johnson will remain chairman and chief executive of the first and largest national cable network targeted to black Americans. He will report to Viacom President and Chief Operating Officer Mel Karmazin while BET COO and President Debra Lee will also continue in her roles.
The purchase, which is expected to close in early 2001, is expected to add to Viacom earnings per share, the spokesman said.
The start
Talk of a deal between the two media companies has been circulating for about a week but Johnson began looking for a buyer when America Online (AOL: Research, Estimates) announced their $109.2 billion merger with Time Warner Inc. in January. Time Warner (TWX: Research, Estimates) is the parent company of CNNfn.com.
"When I looked at 20 years in the industry, and saw the merger of AOL and Time Warner, I realized that strong brands and strong content would be drivers of value in a global media market," Johnson said. "I started thinking who would help build a great brand?"
Johnson realized that it would be easier with a bigger partner to expand.
Talks between Redstone, Liberty Media's John Malone and Johnson began early this summer and developed as Lee and Viacom's Karmazin got involved.
"This is a perfect strategic fit for BET in the 21st Century," Johnson said.
Viacom currently owns a number of prominent cable-TV networks, including the MTV and VH1 music video channels. While it owns the United Paramount Network, which targets primarily to an audience of blacks and young males, it lacks a cable service aimed at that audience.
 The BET purchase will give Viacom the coveted cable holdings, as well as access to publishing and online units targeting blacks. BET Holdings owns and operates the popular Black Entertainment Television, which is the only cable-TV network aimed at blacks and reaches 62.4 million households. BET also owns a jazz network, which has about 11 million subscribers and Action PPV, which has 8.5 million subscribers.
The black population in the U.S. is growing faster than the general population and consumes more media, said Viacom COO Mel Karmazin in a conference call Friday open to the public.
"This market is terrific for Viacom to participate in," Karmazin said.
BET's publishing reach includes owning BET books, a leading publisher of romance novels with black themes, as well as stakes in four magazines. Viacom will also gain BET.com, one of the busiest Web sites for blacks, a spokesman said.
Privately held BET Holdings is also profitable and produced $270 million in revenue over the past 12 months, Viacom executives said. They expect BET revenue to grow at a double-digit rate while earnings before tax, debt and charges, will climb by about 20 percent in the first calendar year, Viacom said.
"BET is one of the last stand-alone networks with significant cash flow, nearly full distribution and significant room for improvement," said analyst Jessica Reif Cohen of Merrill Lynch in a research note.
Instead of price, negotiations focused more on plans that BET's Johnson and Lee had for the company. "The only way to do this deal were if Bob Johnson and Debra Lee entered into long-term contracts," Karmazin said.
Currently, BET is distributed in areas with large black populations and Viacom will look to expand that reach, Karmazin said.
"We think BET should be distributed everywhere," he said. "There are African-Americans all over the country. We don't understand why a cable system anywhere in the U.S. wouldn't want to carry BET."
Viacom also has no plans to sell or spin-off the fast-growing BET.com.
Viacom is buying BET for less than BET was taken private for about four years ago, said PaineWebber media analyst Chris Dixon. Viacom is buying BET for about $48 a subscriber or about 20 times estimated 2001 cash flow.
"It gives Viacom a terrific established-brand TV network that fits well with their portfolio of assets," Dixon told CNNfn.
BET and MTV
For BET, the purchase gives them access to Viacom's ample resources. BET's Johnson owned 63 percent of the firm before the purchase while Liberty Media held 35 percent. Both Johnson and Liberty Media will receive Viacom shares.
Johnson, BET's chairman, said the deal gives BET enormous programming potential and cited CBS, UPN and Paramount. BET's Jazz channel could also gain tremendously from an affiliation with MTV.
"Artists that participate in BET will have an opportunity to have relationships with MTV, VHI and an international reach that BET didn't have," said analyst Edward Hatch of SG Cowen. "Talent that has a strong affinity for BET will be able to develop and grow projects under the Viacom umbrellas."
Hatch pointed to the film "Kings of Comedy," a Paramount film that could now run on BET. Such a successful film would generate significant ratings for BET, Hatch said.
The transaction will also produce cross-promotional opportunities between BET and the UPN Network, which caters to an urban black audience, said Merrill's Cohen.
Liberty Media will benefit from the deal, as they will now have a piece of media conglomerate Viacom, Cohen said.
Creating synergies
The union with Viacom continues a growing trend where black- or minority-lead enterprises are joining with larger, mainstream corporations, Johnson said. He cited such examples as Essence Communication, best known for Essence and Latina magazines, which has formed a joint venture with Time Warner; Radio One Inc., operator of 50 radio stations targeting black markets, which went public in 1999; and, Oprah Winfrey's joint venture with media giant Hearst Corp., which publishes Cosmopolitan.
In considering the deal, Johnson said he talked to several leaders in the black community, including Rev. Jesse Jackson, and concluded that selling to Viacom would provide a boon to the black community.
"We are proud to be combining with Viacom to better serve the African-American community," Johnson said. "This provides a beacon for others. This is an opportunity for the black community to receive more information, more entertainment and more relevant news."
The purchase will provide programming opportunities such as expanding BET news and public affairs, as well as opportunities with UPN, which already targets blacks.
"We will look for some unique synergies there," Johnson said.
The BET founder also hopes to increase the focus of BET's Jazz channel, using MTV's global reach, to bring new listeners.
BET executives do not believe the Viacom union will affect BET.com, the popular Web site, and do not foresee any layoffs because of the deal.
"BET.com is designed to be the pre-eminent African-American portal," said BET COO Debra Lee. "This will not affect their future at all."
However, Lee did not discount chances that BET would look for additional funding for the Web site, or even an IPO, in the future.
BET also will not be looking to shift Viacom executives to BET or melding any BET departments into Viacom. Things, Lee said, will continue as they have for the past 20 years.
"There are no layoffs intended," Lee said. "After the deal closes, if there are ways to get Viacom's help, in terms of systems or how better to do things, we will look forward to that."
The transaction will also not affect offerings of BET, which still offers predominately music-related programming but also provides news, sports and talk shows geared to black audiences.
BET will remain headquartered in Washington, D.C., with offices in New York, Los Angeles, Chicago and the United Kingdom.
Viacom B (VIA.B: Research, Estimates) shares, the more widely traded of the company's two stock classes, lost $1.12 to close at $57.38 Friday. 
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