Ted Turner's hostile $3 billion bid for CBS Inc. is financially viable and could succeed unless the company takes steps to increase the price of its stock, two Wall Street experts said yesterday.
Investment bankers at two leading Wall Street firms, both with significant experience advising corporations on broadcasting mergers and neither involved in the CBS takeover fight, said separately yesterday that internal analyses at their firms showed that Turner's bid is financially credible. They agreed to discuss their confidential analyses with The Washington Post provided they were not identified.
The two investment bankers estimated the value of Turner's bid at about $150 a share. They said that while Turner's bid does involve a high degree of risk because it consists entirely of high-yield "junk bonds," the financial characteristics of the offer, including the projections of how interest payments will be met, are similar to other recently completed buyouts of media companies.
Both investment bankers said that their financial analyses were valid only in the event Turner receives government approval to proceed with his bid. Turner is seeking approval from the Securities and Exchange Commission, the Federal Communications Commission, and the Justice Department, a process that could take many months to complete.
On Tuesday, Morgan Stanley & Co., CBS' investment adviser, told Wall Street analysts that Turner's bid 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. Morgan Stanley's presentation was part of an aggressive campaign by CBS to resist Turner's takeover attempt and was designed to influence Wall Street's analysis just as many analysts are trying to figure out what the complex bid is worth.
The Morgan Stanley presentation was closed to reporters, but analysts later described the CBS presentation. The investment bankers said yesterday they believe Morgan Stanley's presentation was not objective -- since the firm has been retained by CBS to prevent a takeover -- and included several questionable assumptions that made Turner's proposal appear riskier than an objective analysis indicates.
The investment bankers disputed, for example, Morgan Stanley's assumption that the bonds Turner has proposed to exchange for CBS stock are so risky they could be worth nothing because they might not trade. They said that there is a multi-billion dollar market of risky bonds that are actively traded by professional investors.
The opinion of these investment bankers that Turner's bid is financially viable was supported yesterday by a nationally prominent investor who also asked to remain anonymous. He said that while Turner's proposal was risky because it required the sale of CBS assets to help meet interest payments, it was not as unlikely to succeed as many Wall Street analysts have suggested. He said the offer should be taken seriously.
Both the investment bankers and the investor agreed that if Turner is able to sweeten his bid by adding cash, CBS will be forced to take meaningful steps to fight his takeover bid. They said CBS could fight Turner and keep its stockholders happy by adopting several measures, one of which would be to repurchase some of its stock at a price above the stock market price. This would diminish the difference between the CBS stock market price and the value of Turner's bid, making his offer less attractive to CBS stockholders.
While the majority of Wall Street analysts have said they think Turner's bid is not financially viable, Merrill Lynch analyst William Suter disagrees. "Turner's bid is real, and I put a minimum value of $150 a share on his bid," Suter said.
The Wall Street investment bankers said yesterday they believe some of the Wall Street communications analysts' opinions about Turner's bid are biased since the analysts are sympathetic to CBS management. They said that since CBS Chairman Thomas H. Wyman has made it clear that he will take the necessary steps to prevent Turner from acquiring CBS, many analysts think that Turner's bid will fail. Therefore, they do not want to be perceived during this volatile period as anti-CBS or pro-Turner, since they will likely be relying in the future on the cooperation of the current CBS management for the information they need to do their jobs well.
Meanwhile, six senators sent a letter to FCC Chairman Mark S. Fowler yesterday urging him to take an active role in scrutinizing Turner's proposal. The FCC has made it clear that it does not want to be used as an obstacle to hostile takeover attempts as long as the acquirer is an approved broadcaster.
"We are appalled at the indifferent attitude which the FCC has displayed with respect to corporate maneuvering in the broadcast industry," the letter said. It was signed by Democratic Sens. Thomas Eagleton (Mo.), Wendell Ford (Ky.), Daniel Patrick Moynihan (N.Y.), James Sasser (Tenn.), Jeff Bingaman (N.M.), and John J. Exon (Neb.). "Now there is before you the attempt by Ted Turner to take over CBS. If your past tendencies apply in this instance, you will let forth a huge yawn . . . We urge you not to do your big yawn in the Turner-CBS matter."
An analysis of Turner's government filings by The Washington Post revealed that he has agreed to pay his investment banker, E. F. Hutton, $20 million if CBS acquires control of Turner Broadcasting Systems. Investment banking sources said this would enable Hutton to earn that fee whether Turner acquires CBS or CBS acquires his company, which owns the WTBS Superstation, Cable News Network and the Atlanta Braves. This indicates that Hutton believes the takeover battle could end with Turner selling his company to CBS.
Turner's bid for CBS, which includes no cash, offers CBS stockholders a complex package -- including high-yield, risky "junk bonds" -- in exchange for their stock and includes a plan to help finance the proposed takeover by selling all of CBS' non-television broadcasting businesses.