Talks on $3-Billion Union of CBS With QVC Reported : Media: Sources close to the discussions say plans are ‘very serious.’ But no final deal has been reached.

CBS Inc. Chief Executive Laurence A. Tisch and QVC Inc. Chairman Barry Diller are in negotiations to combine their companies in a deal valued at roughly $3 billion, sources close to the talks said Wednesday.

Under the terms being discussed, CBS would acquire the smaller QVC in a stock swap that would follow a cash payout to CBS shareholders. Diller would assume control of the combined company, with 71-year-old Tisch agreeing to retire or take a background role upon completion of the acquisition.

The deal would create an entertainment/home shopping conglomerate with strong ties to the cable TV industry and the emerging “information superhighway� and would take some investor pressure off both companies. The deal is also the latest in a series of on-again, off-again merger discussions in the media world, including the failed effort to join phone giant Bell Atlantic with cable giant Tele-Communications Inc. In this fast-changing environment, all of the major broadcast networks are expected to undergo similar structural changes.

Sources say the CBS-QVC discussions, which have been under way for some time and are described as “very serious,� nearly broke down three weeks ago. Tisch and Diller are set to resume their talks this morning.

Although CBS has been the prime-time ratings champ for the past three years, Tisch has come under fire recently for allowing NFL football to slip away to the Fox network and for subsequently losing eight key affiliates to Fox. The CBS chairman was attending a meeting at New York University on Wednesday afternoon and could not be reached for comment on the talks with Diller.

Diller has been under pressure to make a transforming deal for QVC since earlier this year, when he lost a $10-billion battle with Viacom Inc. for control of Paramount Communications. Like Tisch, he could not be reached for comment Wednesday.

Explaining the terms of the proposed deal, sources said CBS will likely refinance itself to pay its shareholders a $2.5-billion cash dividend before the QVC acquisition. Such a move by CBS would effectively shrink the broadcasting company and bolster the ratio of QVC shares in a stock swap. Although CBS would still be the acquiring company, it would be a union of near equals. CBS has more than $1 billion in cash and very little long-term debt--roughly $590 million as of March 31.

There was some speculation that word of the talks would effectively put both companies in play, but Tisch and Diller are expected to move quickly to close a deal.

Although rumors of a sale of CBS have circulated regularly since Tisch became chairman in 1986, he has repeatedly insisted that the network was not on the block. As recently as last month, when Tisch was in Los Angeles for a stormy affiliates’ meeting, he was talking about his long-term strategy of acquiring new affiliates and building a stronger programming base.

“If I thought that we could not increase our earnings every year for the next five years, I would say, ‘Jeez, maybe we have to be a little more daring or something.’ But we see a clear path for increased earnings every year,� the CBS chairman said at the time.

Nonetheless, Tisch regularly entertained prospective buyers, including The Walt Disney Co., which had always been considered the leading candidate to acquire the network. Sources say Disney’s interest waned recently as it focused on other areas, such as theme park expansion and new media.

Diller has coveted a TV network since he left the chairmanship of Fox three years ago. A former chief of the Fox and Paramount studios, Diller wants to use the highly profitable QVC to fashion a high-tech media/entertainment colossus for the 21st Century.

Ironically, Tisch has privately said he would never sell CBS to Diller, since the two strong-willed and temperamental executives have never been close. The idea that Tisch would hand over management of the network to Diller struck some insiders as puzzling.

It is also not known how the deal would affect QVC’s largest common shareholders--Liberty Media Corp., an affiliate of Denver-based cable TV giant Tele-Communications Inc.; Time Warner Inc., and Philadelphia-based cable TV operator Comcast Corp.

However, by combining with QVC, Tisch would be able to deflect criticism that he was abandoning his promise not to sell out because of his stake in the combined companies.

Tisch became chairman of CBS in September, 1986, after a dramatic boardroom coup that ousted Chief Executive Thomas Wyman. CBS under Tisch has gone through wrenching changes, in part because of structural shifts in the media landscape, owing to the explosive growth of cable television, and in part because of Tisch’s personal no-frills operating style.

Shortly after being named chairman of CBS in September, 1986, Tisch began selling off key assets, such as the book and magazine publishing divisions and, later, CBS Records to Sony Corp. of America for $1.8 billion. Tisch’s strategy was to prune CBS back to its core broadcasting business and invest the cash as a “safety net� to earn income.

But, although Tisch-mandated budget cuts forced CBS to lay off hundreds of employees, he was also willing to spend money for programming, and he shelled out billions of dollars in costly baseball and football contracts that eventually forced the company to take huge write-downs.

The QVC discussions come less than two months after CBS lost eight key affiliates to Fox and only weeks after Tisch declared that he would spend “whatever it takes� to replace the CBS stations that defected to the upstart fourth network. Tisch had also come under fire for losing the network’s perennial pro football broadcasts, when he was outbid by Fox’s Rupert Murdoch.

In an unrelated announcement Wednesday, CBS said it had made a deal to replace the affiliates it lost in Phoenix and Saginaw, Mich.

CBS shares closed up $4, at $263, Wednesday on the New York Stock Exchange, before word of the talks surfaced. QVC shares eased 37.5 cents, to $32.375 on Nasdaq. Both stocks have performed poorly recently. CBS shares have plunged from a peak of $326.50 last year, as the stock market in general has fallen.

Times staff writer Kathryn Harris contributed to this story.