In a deal that would rank as the largest ever in the media and entertainment businesses, movie and television giant Paramount Communications Inc. has formally proposed merging with cable industry powerhouse Viacom Inc., sources said yesterday.

The proposal is expected to be submitted today for approval to the boards of both New York companies.

The proposed merger would create a global conglomerate with holdings in movie and television production, cable TV networks and systems, amusement parks, book publishing, professional sports teams and broadcast television and radio stations.

Based on the current prices of the two companies' stocks, a merger of Viacom and Paramount through an exchange of shares would be valued at $16.9 billion, according to the media research firm Paul Kagan Associates. It would be the largest media-entertainment combination to date, surpassing Time Inc.'s $14 billion acquisition of Warner Communications Inc. in 1989.

Viacom is best known as the owner of MTV, Nickelodeon and Showtime cable channels. Paramount, owner of one of Hollywood's Golden Age studios, is a formidable producer of TV shows and movies, including "Cheers," "Entertainment Tonight," "Top Gun" and "Star Trek." Locally, Paramount owns WDCA-TV, Channel 20, and the Kings Dominion theme park; Viacom owns WMZQ-AM/FM.

A merger between Paramount and Viacom would follow other recent deals in the entertainment business as a handful of corporate giants race each other for control of production and distribution channels.

Rupert Murdoch, for example, is building a worldwide TV network through his News Corp. and 20th Century Fox. Time Warner, owner of Warner Bros. Inc., is seeking to add a fifth domestic television network. And Ted Turner's Turner Broadcasting System Inc. recently added two smaller Hollywood studios to its array of cable TV channels.

"This is all about who controls the 500-channel TV universe of tomorrow," said Douglas Gomery, a University of Maryland professor who specializes in the economics of the media. "This will make {Paramount-Viacom} a player in every market."

However, the proposed merger could draw scrutiny from antitrust officials in Washington before it is completed.

The Justice Department, under the Clinton administration, has signaled that it will take a more active stance on business mergers than the Bush or Reagan administrations. At the same time, the Federal Communications Commission, controlled now by Democrats, has abandoned much of the deregulatory policies that characterized the agency during the past 10 years.

The FCC is in the midst of a proceeding to establish limits on the number of cable systems and cable program networks one company can own.

Current FCC rules prohibit a company from owning a broadcast TV station in the same market as it owns a cable outlet. FCC interim chairman James Quello said he would wait to see the terms of the merger before making any recommendations on divestiture.

Ironically, such concerns were instrumental in shaping Viacom and Paramount. In 1948 Paramount's studio operations were split from the company's vast movie theater holdings by agreement with the Justice Department in a famous antitrust consent decree involving the movie industry. The department said a studio couldn't also own a movie theater chain.

Viacom was virtually created by the federal government in the early 1970s after the Nixon administration forced CBS Inc. to give up its lucrative television syndication business.

Viacom, spun off from CBS, used the profits from selling reruns to such CBS shows as "I Love Lucy" to expand into cable television, radio and other businesses over the last 20 years.

Both companies declined to comment on their negotiations.

Paramount Communications Inc., an entertainment and publishing company, had 1992 sales of $4.3 billion while Viacom Inc., a diversified entertainment and communications company, had 1992 sales of $1.9 billion. Here are some of their major holdings:

PARAMOUNT

Paramount Pictures, a film and television studio that made such films as "The Firm" and "Indecent Proposal" and TV shows as "Cheers," "The Arsenio Hall Show," "Star Trek: The Next Generation" and "Entertainment Tonight."

TV stations, including WDCA-TV, channel 20

Simon & Schuster and Prentice Hall publishing companies

Madison Square Garden

New York Knicks basketball team and New York Rangers hockey team

Kings Dominion and other theme parks

VIACOM

MTV Networks, which includes MTV, Nickelodeon and VH-1

Showtime Networks Inc., which includes The Movie Channel and Showtime

Cable television systems with 1.1 million subscribers in California, the Pacific Northwest and Midwest

Numberous television and radio stations, including WMZQ

Viacom Entertainment, which syndicates TV programming such as "Roseanne" and "The Cosby Show"

Sources: Bloomberg Business News, Hoover's Handbook and Staff reports