Ted Turner's $3 billion bid for CBS Inc. would leave the company so burdened with debt that it would not make a profit for at least 10 years and might be bankrupt by 1987, according to a study presented to Wall Street analysts today by CBS' financial adviser.
The presentation to Wall Street analysts by Morgan Stanley & Co. was part of an aggressive campaign by CBS to resist Turner's takeover attempt. It was designed to influence Wall Street's analysis of Turner's proposal just as many analysts are trying to figure out what his complex bid is worth.
The meeting was closed to reporters, but analysts later described the CBS presentation.
Turner launched his bid for control of CBS last Thursday. His bid, which includes no cash, offers CBS stockholders a complex package -- including high-yielding, risky securities known as "junk bonds" -- in exchange for their stock and includes a plan to help finance the proposed takeover by selling all of CBS' non-broadcasting businesses.
While Wall Street estimates of the value of Turner's bid have ranged from $120 a share to $160 a share, Morgan Stanley managing director Joseph G. Fogg III told Wall Street analysts today that the bid may not, in reality, be worth anything because the company would not be able to make certain interest payments under the plan. Wall Street analysts are deriving their estimates by comparing the securities Turner is offering with the value of existing risky securities that they believe have similar characteristics.
Analysts said Fogg's analysis differs from theirs because he believes the junk bonds offered by Turner might not even trade if the company is forced into bankruptcy. On Monday, CBS directors suggested the same thing when they rejected Turner's offer, saying it would weaken the company financially by burdening it with excessive debt.
Analysts said that Fogg's analysis indicated that Turner would not be able to pay preferred dividends promised under the offer; that Turner's proposal failed to include a $350 million tax liability that makes the bid even riskier; and that Turner Broadcasting System Inc. would not have earned a profit in 1983 and 1984 if it had followed standard accounting rules.
Turner's investment banker, E. F. Hutton, said today it would not respond to the attempts to discredit Turner's bid. Hutton officials said the firm would respond after it has the opportunity to clear its statements through the Securities and Exchange Commission.
"I was feeling negative on the Turner bid before the presentation, and they said the company could be bankrupt by 1987 under the terms of the deal," said Bear, Stearns analyst Barry Kaplan. "The theoretical value of Turner's bid is $150 a share, but if there is not enough cash flow to support the interest payments, the securities might not even be tradeable."
"I think Morgan Stanley did a fairly effective job of puncturing holes in the feasibility of Turner's package," said Dean Witter analyst Fred Anschel. "I've felt all along that the financial soundness of the offer was marginal at best due to the extremeness of the leveraging."
But not all Wall Street analysts agree that Turner's bid is not viable, and many believe that even if Turner fails to gain control of the company, CBS will be forced to take steps to increase the price of its stock. "I think that Turner could squeak by, but one way or another, CBS management is going to be forced to take action to placate its institutional shareholders who smell CBS asset values," said C. J. Lawrence analyst Peter Appert.
"This company is in the spotlight and in play. They could do their own leveraged buyout."
CBS has been the target of takeover speculation since the conservative Fairness in Media group said in January that it wanted to gain control of it to end what it calls a "liberal bias" in CBS network news coverage. FIM, supported by Sen. Jesse Helms (R-N.C.), has said it will do whatever it can to help Turner gain control of CBS.