Print It! Time Warner's Purchase of Turner Almost a Wrap
Oct. 06, 1996
NEW YORK (AP) _ Pssst. Time Warner is close to wrapping up its purchase of Ted Turner's cable empire.
If you didn't know that, you've somehow escaped _ perhaps mercifully _ the avalanche of reporting, analysis and reanalysis that has turned it into one of the most hyped takeovers ever. Worth about $7 billion, the purchase of Turner Broadcasting System even falls short of the 10 biggest U.S. mergers, six of which have either been announced or completed this year.
So why all the attention?
The deal, which shareholders will vote on Thursday and are expected to approve, benefits in part from the media's endless fascination with itself. Having household brands like CNN, Time and HBO involved and a marquee name like Ted Turner doesn't hurt.
A failed effort by Time Warner's entertainment and cable partner U S West to block the deal, together with a regulatory tussle over government antitrust concerns, have added more twists and turns than the road from New York to Atlanta.
Ironically, some of toughest work remains to be done. Wall Street analysts predict that after the purchase is complete enormous pressure will fall on Gerald Levin, Time Warner's chairman, and its new vice chairman, Ted Turner, to simplify the media company's confusing and unwieldy corporate structure, reduce its enormous debt and give its stock a swift kick.
As it stands now, Time Warner Inc. is so complicated that some investors have shied away from buying shares because they lack the time and expertise to understand the company.
``Life is too short,'' said Tom Wolzien, a media analyst at the brokerage firm Sanford C. Bernstein & Co. ``The other side of that is if you spend the time on it, you realize the stuff that they own is really terrific.''
The combined company will be the progeny of another huge merger. The 1990 combination of Time Inc. and Warner Communications Inc. gave birth to a company with starring roles in the movie and television businesses, the publishing industry and the cable business. It has ranked as, and with the Turner purchase will regain the title of, the world's biggest media and entertainment company.
Bragging rights aside, the tasks Time Warner faces are great and there is speculation Levin may be running out of time. The day after the merger of Time and Warner was completed, Jan. 10, 1990, its stock traded just above $29 a share, split adjusted. Today, it's only about $10 higher. Clearly, Wall Street has not been terribly impressed.
One major issue facing the company is its Time Warner Entertainment partnership. Time Warner owns about three-quarters of it and U S West Inc., a phone company, holds the rest.
Comprising the Warner Bros. movie business, the HBO pay-TV network and about three-quarters of Time Warner's cable systems, the partnership has been a sore spot with analysts as the cash it generates is hard to track to Time Warner's bottom line. Wall Street wants it sorted out.
``There's not a strategic reason as much as it cleans up the situation,'' said Dennis McAlpine, a media analyst at Josephthal, Lyon & Ross Inc., another brokerage firm.
The main scenario making the analyst rounds is a spin-off of Time Warner's cable system businesses into a new company that would be jointly owned by Time Warner and U S West. That would presumably leave Time Warner with full ownership of Warner Bros. and HBO. Simple as it sounds, several rounds of negotiations have failed to produce an agreement. The issue has reportedly been control of the new cable company.
Creation of such a business would also allow Time Warner to deal with its debt problem, as it would attach some of the borrowings to the cable company. Following the Turner purchase, Time Warner's debt will stand at $17.5 billion. It will have annual revenue of about $21 billion.
Even now, Time Warner generates more than enough cash to make its debt payments, which add up to $1.4 billion a year. But it could easily use that money for other purposes.
Making things even tougher, as it deals with the nagging problems of debt and the U S West partnership, Time Warner's management will need to address another challenge: blending Turner Broadcasting System Inc. and its risk-taking personality with Time Warner's more conservative organization.
Here's something to chew on. Kenneth Smith, a consultant at Mercer Management Consulting, says his research shows most mergers that fail do so not because of price paid or overall strategy. The issue is how the merging companies manage the actual process of combining operations and work forces.
In this, Wall Street and Main Street alike will be watching.
Job reductions are expected at Turner Broadcasting, and perhaps at Time Warner's operations as well. Some of the merger steps already announced are designed to eliminate overlap, such as combining Turner's film and television libraries with those of Warner Bros.
Still unresolved, too, is what will happen to New Line Cinema, Castle Rock Entertainment and Turner Pictures, movie studios in Turner Broadcasting's portfolio. Castle Rock has reportedly been negotiating with potential buyers, New Line Cinema reportedly has retained investment bankers and Time Warner will only say it is exploring alternatives.
Selling the ministudios could help pay down debt. But if Time Warner keeps them, another potentially thorny issue arises: Would they report to Turner or to Warner Bros. co-chairmen Robert Daly and Terry Semel?
Finally, there's Ted Turner himself. Brash and outspoken, Turner made headlines two weeks ago when he reportedly compared fellow mogul Rupert Murdoch to Adolf Hitler. What he'll do at Time Warner is a big unknown.
As Time Warner's largest single shareholder, with about 10 percent of the company's stock, he will be influential _ and, no doubt, entertaining.
``Let's say it'll be a very interesting first 12 months,'' said Jeffrey Logsdon, an analyst at the brokerage firm Cruttenden Roth Inc. ``Often times, you don't know what's going to happen until the marriage takes place.''
First things first, then. Shareholders of both companies will gather separately Thursday in the same auditorium where Turner and Levin announced their deal on Sept. 22, 1995. Either that day or shortly after, as long as shareholders OK the merger and barring unforeseen delays, the two companies will become one.
You can bet the cameras will be there.