Viacom Puts Its 78% Stake in Spelling Up for Sale : Media: Analysts value Spelling at between $1.2 billion and $2 billion. A deal would help Viacom defray debt.

Attempting to capitalize on the feeding frenzy and high prices of media assets, Viacom Inc. said Thursday that it has put up for sale its 78% stake in Spelling Entertainment Group Inc., the creator of “Melrose Place,” “Beverly Hills 90210” and a library of past hit shows.

Analysts valued Los Angeles-based Spelling at between $1.2 billion and $2 billion, so a deal would help Viacom further defray the nearly $10 billion in debt accumulated from last year’s acquisitions of Paramount Communications and Blockbuster Entertainment Corp., analysts and investment bankers said.

“Viacom recognizes that there is a major consolidation under way and that it can get the highest price right now,” said Christopher Dixon, an analyst at PaineWebber Inc.

A deal also could allow Viacom to rid itself of a company that duplicates much of the work of its Paramount Television Group, which produces “Frasier” and “Wings” and syndicated TV shows such as “Entertainment Tonight,” “Hard Copy” and “Montel Williams.” Spelling’s theatrical and television production and distribution operations are smaller but similar to Paramount’s.

“This is an overlapping asset that would be hard to integrate into Paramount,” Dixon said.

Bear Stearns & Co., which has been retained by Viacom, is thought to have a list of 50 potential buyers. Among them, analysts said, is Westinghouse Electric Corp., which has agreed to buy CBS Inc. but lacks programming expertise to compete against the likes of Walt Disney Co., the proposed new owner of Capital Cities/ABC Inc.

Foreign media companies looking to expand their American footholds, such as PolyGram or Bertelsmann, also might be interested, analysts said. Another prospective suitor is New World Entertainment, which just bought Cannell Entertainment Inc., creator of “The Rockford Files,” to feed its 12 television stations and fulfill its agreement to supply shows to Fox Broadcasting Co.

“This asset gets relatively buried inside this large entity called Viacom,” said Thomas E. Dooley, executive vice president of finance, communications and development at New York-based Viacom. “After examining our competency and the competency in Spelling, we decided that this asset would be more valuable to someone else than it is to us.

“There are lots of people trying to get into the business right now--DreamWorks, [billionaire investor] Paul Allen, the telephone companies. Spelling has the infrastructure you need to have immediate distribution, and it has cash flow from the existing library to jump-start someone’s efforts.”

Spelling was acquired as part of Viacom’s purchase last year of Blockbuster, but it was never merged with Paramount Television. Under the proposed sale, Viacom would sell the 78% interest Blockbuster owns in Spelling but would buy back Virgin Interactive Entertainment, which Blockbuster bought and merged into Spelling in 1994. Virgin, which publishes interactive software, including “The Lion King,” would be merged into Viacom’s new media group.

Aaron Spelling, the chief force behind Spelling Entertainment, is one of the most prolific producers of TV shows. Over a 30-year period, Spelling has had hits such as “The Love Boat,” “Charlie’s Angels” and “Dynasty” as well as the newer hits appearing on Fox.

Still, some Hollywood executives doubt that Spelling’s company is worth as much as investment bankers estimate. Wall Street analysts estimate that Spelling could sell for $1.2 billion or more, based on the 12 to 15 multiples of cash flow that other studio properties are bringing. Spelling’s cash flow this year is estimated at between $90 million and $115 million. It has 18,000 hours of international programming rights and 10,000 hours of domestic television rights.

But one television executive said Spelling could not be valued using the same cash flow standards as other programming assets because of its poor syndication record. Its cash flow numbers are higher than those of many TV producers, this executive said, because Spelling demands more money upfront from the networks to make up for the slight “back end.”

“There’s no continuing value to these shows, except maybe to a new cable channel that needs to fill up time on its schedule,” said the source, pointing out that ABC, for instance, might want the library for its new soap opera channel, although not at that price. “Action adventure shows like ‘The Rockford Files’ hold up better over time than soap operas like ‘Dynasty,’ which failed in syndication.”

What is more, many in Hollywood say, because the company has had so many incarnations, as well as multiple owners and co-producers in the last decade, the Spelling asset is financially complicated.

“No one is quite sure who owns what rights,” said Jeffrey Logsdon, an analyst at the Seidler Cos. in Los Angeles. “Some assets you own, some you distribute but don’t own, some you own in partnership with others. It’s a 2,000-piece puzzle.”

Yet analysts say Spelling is more than a producer of soap operas.

After accumulating a 78% interest in Spelling Entertainment by 1994, Blockbuster bought and merged into Spelling the Republic Pictures Corp., an independent movie producer and distributor with a library that includes films such as “High Noon,” “Rambo,” “Terminator 2” and “The Bells of Saint Mary’s.”

Republic is the former distribution arm of NBC, and Worldvision, an arm of Spelling, is the former distributor for ABC before government regulations in the early 1970s banned networks’ owning the shows they aired and forced them to divest these divisions. As a result, Spelling owns the pre-1974 TV libraries of NBC and ABC.

Investment bankers say Spelling’s cash flow has doubled since the purchase by Blockbuster.

Shares in the 22% of Spelling Entertainment stock that is publicly traded closed Thursday at $12 a share, up $1.875.

Since its Blockbuster and Paramount acquisitions, Viacom has been shedding assets that do not fit its current mix. Such assets include Madison Square Garden, which brought $1.1 billion; a minority stake in the Lifetime cable service, and cable systems that will generate about $2 billion when they are spun off.

The proceeds, combined with those from the Spelling sale, could pare debt to between $6 billion and $7 billion. That is a level Viacom’s management is comfortable with, Executive Vice President Dooley said, suggesting that further asset sales are no longer as pressing.

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Spelling at a Glance

* Company: Spelling Entertainment Group Inc.

* Headquarters: Los Angeles

* Chief executive: Steven R. Berrard

* Employees: 700

* Major products: The company is a preeminent producer and distributor of television programming, including hits “Melrose Place” and “Beverly Hills 90210.”

* 1994 revenue: $599.8 million

* 1994 profit: $24.1 million

* Thursday stock price: $12, up $1.87

Sources: Bloomberg Business News, Times reports