Shareholders of CBS Inc. vote today on whether to merge with Westinghouse Electric Corp. in a $5.4 billion-dollar deal that could affect Baltimore-area institutions like Westinghouse's defense contracting business and Westinghouse-owned WJZ-TV, the local affiliate of the CBS television network.
The local effects will not be dramatic at the start of the marriage, which is expected to win easy approval. But some analysts who follow Westinghouse believe the merger will start to lead Westinghouse away from low-return industrial businesses that have been hammered by forces as diverse as the end of the Cold War and the stagnation of world markets for nuclear power.
"It's definitely a possibility," said Jonas Stiklorius, an associate analyst with NatWest Securities Corp. in New York. "Down the road, with the purchase of CBS, we believe Westinghouse will be getting out of its industrial businesses altogether."
Westinghouse officials, who did not return calls yesterday, have said NatWest analysts have made a mistake by linking Westinghouse's pursuit of CBS and its decision to lay off about 1,000 workers in the Linthicum-based Electronic Systems Group.
NatWest analyst Nicholas P. Heymann speculated in a recent report that Westinghouse made the move to shore up the defense division's profits in preparation for a sale that would pay down the debt Westinghouse will take on to pay for CBS.
That prediction hits Maryland, where about 9,000 Westinghouse employees and their families live. The biggest Westinghouse industrial business is Electronic Systems, which has gone through several waves of layoffs as defense cuts have shrunk the business, but which still had $2.5 billion in sales last year.
Mr. Stiklorius said Westinghouse is likelier to try to sell its power generation business or its energy systems unit, which includes nuclear services and fuel businesses. But he said the company may find the more profitable defense business easier to unload.
But the defense business is still nowhere near as profitable as broadcasting. Electronic Systems' profit last year equaled about percent of its sales. Westinghouse's Group W Broadcasting unit, which owns WJZ, earned $203 million on sales of $870 million -- a bigger profit than Electronic Systems on about one-third of the sales.
"The better-run stations make 45-50 percent [of sales] as an operating profit margin," said Marcellus Alexander, general manager of WJZ.
But CBS hasn't made that sort of money running the stations it owns. NatWest says CBS stations make only 30 percent margins -- before corporate overhead, interest and taxes reduce profits further. Westinghouse's $81-a-share play is a bet that it can do better with the most profitable part of CBS Inc. CBS shareholders are willing to let Westinghouse make that bet.
"Eighty dollars a share is a great price from a seller's perspective," said Brian Stansky, media analyst for T. Rowe Price Associates Inc., who said the firm is voting the CBS shares it owns in favor of the deal. "In the near term, the critics [who say Westinghouse is paying too much] are right. Ratings are falling, and cash flow is falling with it."
Indeed, CBS' proxy statement recommending approval of the deal said its projections showed CBS operating profits dropping 39 percent this year from 1994, as the network and network-owned stations both get hit by the drop of CBS' ratings to third place among major networks.
Mr. Alexander said WJZ's ratings have eroded slightly since it became a CBS affiliate in January, switching from the ABC network, because ABC's prime-time programming was stronger. He said the CBS network has been hurt by the defection of major affiliates.
But he said the pendulum could swing back quickly for CBS.
"Our business is very cyclical; over the past six years each of the networks has probably been number one," he said. "In a year and a half, CBS will be much stronger. One reason is the type of people who will be in place. Two, I have confidence in my company."