NEW YORK -- Capital Cities Communications Inc announced an agreement yesterday to acquire the much larger American Broadcasting Cos Inc (ABC) for more than $3.5 billion in a deal that includes the participation of Warren Buffett, one of the nation's richest men.

The deal most be approved by stockholders and will require "some divestitures" to obtain regulatory approval, according to ABC and Capital Cities, both of which own local television stations. The proposed combination would be called Capital Cities ABC Inc.

Buffett, a resident of Omaha, Neb who made his fortune by in vesting in media operations is to put up more than $500 million in exchange for an 18 percent state in Capital Cities and a seat on its board.

ABC which had been a rumored takeover target for months, had been a strong second in the prime time TV ratings in recent years but it slid into third in the current season. However, its daytime TV operations remain highly profitable, analysts say.

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The two companies said Leonard Goldenson, the 79-year-old chairman and chief executive officer of ABC, would serve as chairman of the executive committee of the proposed new company.

Thomas Murphy, 59, Capital Cities' chairman and chief executive officer, would hold the same titles at the new company.

ABC has television and radio operations and also is involved in publishing, video enterprises, motion pictures and scenic attractions Capital Cities owns newspapers, TV and radio stations and cable TV systems.

ABC and Capital Cities said shareholders of both companies are to consider the deal at their annual meetings in June. Proxy materials outlining the agreement will be mailed as soon as possible, they said.

The agreement is subject to approval by the Federal Communications commission and "various other conditions," they said.

Under the agreement, each ABC shareholder would receive $118 in cash plus a tenth of a warrant that would allow the purchase of Capital Cities common stock at a set price.

Each whole warrant would entitle the holder to purchase one share of Capital Cities, common stock at $250 a share for a period of 24 years from the merger For a period of 90 days following the merger, holders of warrants would have the right to sell the warrants to Capital Cities for $30 each.

The companies said that including the warrant provision the deal was worth $121 a share ABC has 291 million shares outstanding.

ABC stock closed at$105:75 on the New York Stock Exchange, up $31,25 from Friday Capital Cities was up $7.50 at$183.50.

Capital Cities which earned $135.2 million on revenue of $939.7 million last year, has four ABC affiliated television stations in Philadelphai, Houston. New Haven Hartford, Conn., and Buffalo, NY. In addition it owns CBS affiliates in Raleigh-Durham, N.C., and Fresno Calif., and an independent station in Tampa-St. Petersburg, Fla.

Capital Cities also holds licenses for 12 radio stations and owns more than 50 cable television systems. It also owns the Fairchild Publications business newspaper group and daily newspapers include the Times and the Star in Kansas City, Mo; the Star-Telegram in Fort Worth, Texas; and the Oakland Press in Pontiac, Mich.