BIZWATCH

By BERNARD BAUMOHL, JOHN GREENWALD AND JEANNE MCDOWELL

BARRY'S BACK IN PRIME TIME

First he lost a bidding war for Paramount Communications in 1994. Then his effort to take over CBS collapsed at the last minute. But last week Barry Diller, who masterminded the rise of the Fox Network for Rupert Murdoch's News Corp. a decade ago, was no longer a mogul-without-portfolio. Diller, who heads up the unglamorous HSN, whose holdings include the Home Shopping Network and a stake in Ticketmaster, struck a deal for nearly $4.1 billion with Seagram Co. that lays a foundation for his own entertainment empire. Diller, 55, will pay Seagram $1.2 billion in cash plus HSN stock for Seagram's USA and Sci-Fi cable channels and most of its Universal TV operations. Among them: the acclaimed cops-and-lawyers show Law and Order and schlock hit Xena: Warrior Princess.

The new enterprise, called USA Networks, puts Diller back in prime time with a long-sought chance to compete with the major broadcast networks. And it brings Seagram new outlets for its TV programming through HSN's 18 broadcast stations. It also enables Seagram CEO Edgar Bronfman Jr. to team up with pal Diller, one of TV's shrewdest programmers.

ITT FINALLY SLAMS THE DOOR ON HILTON

Looks like checkout time for Hilton Corp.'s Stephen Bollenbach. After an entertaining nine-month battle, replete with name calling, to buy ITT and its prized Sheraton properties and Caesars hotels and casinos, Bollenbach came up empty. But the escape from Hilton cost ITT its independence. Fearful that ITT shareholders would accept Hilton's $70 a share offer in two weeks, ITT chairman Rand Araskog pulled a rabbit out of a hat by agreeing to sell ITT to Starwood Lodging for $82 a share. That's 17% more than Hilton's "final" offer.

Starwood Lodging, a real estate investment trust (REIT) based in Phoenix, Ariz., was able to outbid Hilton because of a loophole in the tax laws that jacks up a reit's market value. If ITT stockholders approve the deal, the new combination would become the largest lodging company in the world, with 650 hotels in 70 countries and total annual revenues of more than $10 billion. As for Araskog, 65, under the plan he will step down next year and get a seat on Starwood's board plus a consolation prize: a $55 million severance package that was designed as part of ITT's "defense" against a takeover.

So it's over, right? Well...there is an enticing story line that could have the wily Araskog pulling off one last masterly stroke. Once ITT shareholders formally reject Hilton's bid next month, the ITT chairman could cancel the Starwood deal and continue his 18-year reign over the company. No one ever played Monopoly like this.

AT&T FOLDS ITS UNIVERSAL CARD

On the same day that AT&T replaced faltering CEO Robert Allen with former Hughes Electronics boss C. Michael Armstrong, the phone giant put its staggering $14 billion Universal Card business on the block. AT&T terrorized the credit-card industry and started a trend by introducing, with spectacular results, the no-fee-for-life Universal Card in 1990. But the lack of a fee made AT&T dependent on interest charges that many customers refused to rack up. According to Robert McKinley, president of RAM Research, holders of as many as 60% of AT&T's 18 million Universal Cards are "convenience users" who pay off their bills each month. The industry average is 30% to 40%.

AT&T's exit is more bad news for users of credit cards. Ford Motor and Citibank last summer killed a co-branded card that came with a 5% rebate on every purchase, and GE last year warned holders of its GE Rewards MasterCard to expect a $25 annual penalty unless they incurred some interest-bearing debt. Moves such as GE's have been fast turning "no-fee" cards into "no free lunch" cards. "Issuers got really crazy with these free cards," says David Berry, director of research for bank analyst Keefe Bruyette & Woods. "Now they are going back to the drawing board to create new charges."