Viacom Inc. has announced a deal to acquire U.S. TV Network CBS Corp. in a stock swap with an indicated value of US$34.8 billion.

The combination, which the companies characterized as a merger, would create a media powerhouse owning the CBS network, several major cable networks -- including MTV, Nickelodeon, Country Music Television and the Nashville Network -- and storied film studio Paramount Pictures.

Under terms of the deal, the two companies said CBS shareholders will receive 1.085 Viacom Class B shares for each CBS share. Based on Viacom's Class B closing price of US$45.06 on Friday, the transaction values each CBS share at US$48.89. CBS shares were closed at US$48.9375 in composite trading on the New York Stock Exchange on Friday.

According to a company spokesman, CBS has about 711 million shares outstanding on a fully diluted basis.

The combined entity, to be called Viacom, will be led by Sumner Redstone, who will remain chairman and chief executive of Viacom.

CBS' Mel Karmazin, a tough-minded executive who rose from the ranks of the radio industry to take control of CBS in 1997, will be president and chief operating officer of the combined firm. Viacom deputy chairmen Tom Dooley and Philippe Dauman will leave the company when the merger becomes effective, but will continue to serve on the board.

Mr. Redstone remains the majority Viacom Class A voting shareholder and will continue to control the company.

The deal marks a new chapter in the long business career of Mr. Redstone, 75 years old, who took control of Viacom in 1987 and seven years later greatly enlarged it by buying Paramount Communications Inc. and Blockbuster Entertainment Group.

In the past couple of years, Mr. Redstone has been selling off assets at Viacom, drastically reducing the company's debt and improving its stock valuation. Last month Viacom sold a minority stake in video-rental chain Blockbuster Inc. to the public in a stock offering and it plans to spin off its remaining stake within six months.

The Blockbuster spinoff would leave Viacom's balance sheet very conservatively structured, putting Mr. Redstone in a strong position for the new deal.

The pact with CBS comes just a month after the Federal Communications Commission relaxed television-station ownership rules and precipitated a round of intense discussions between media companies over possible mergers. Viacom owns a station group and a 50% stake in the UPN network. The future status of UPN was unclear because government rules prevent one company owning more than two networks.

Mr. Redstone and Mr. Karmazin are believed to have met for lunch a few weeks ago, at which time Mr. Karmazin raised the possibility of CBS buying Viacom, people familiar with the situation said. Mr. Redstone strongly opposed the idea of selling, but the meeting apparently sparked talks which came to a head in recent days.

Mr. Karmazin believed he could sharply improve the profitability of Viacom's TV stations, according to a person familiar with his thinking.

The merger reunites two companies split apart three decades ago by government rules, eliminated a few years ago, aimed at preventing networks owning their own programming. In recent years, however, deregulation has sparked a move toward vertical integration in the television industry, highlighted by Walt Disney Co.'s purchase of ABC in 1996.

News Corp. already owned the Fox network and just two months ago Disney announced the merger of its ABC network and its TV-production studio, in an effort by the company to ensure that more of the television shows it makes are aired on ABC. The CBS-Viacom deal will leave NBC as the only major network without a tie to a studio.

Morgan Stanley Dean Witter and Co. acted as financial advisor for Viacom. Evercore Partners Inc. acted as financial advisor for CBS. Shearman & Sterling acted as legal advisor to Viacom and Cravath, Swain & Moore acted as legal advisor to CBS.

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