Ted Turner's hostile takeover bid for CBS Inc. will force the company to undergo a financial restructuring to increase the value of its stock, Frederick H. Joseph, head of the corporate finance department at Drexel Burnham Lambert Inc., predicted yesterday.
Joseph said there is "zero chance" that Turner will win his fight to gain control of CBS, but he said the Atlanta broadcaster's bid will force CBS management to take dramatic steps. Last week, The Washington Post reported that two other Wall Street investment bankers said that internal analyses at their firms showed that Turner's bid is financially credible and worth about $150 a share.
"The fact is that Turner is not going to end up with CBS," Joseph said yesterday during a meeting with Washington Post reporters and editors. "He will force CBS to do some sort of an asset reallocation or something for their shareholders, which will benefit their shareholders.
" . . . They [CBS] have 50 defenses, one of which would be to sell out, another of which would be to sell some pieces and make cash available to shareholders. They could do a leveraged buyout or do a partial leveraged buyout."
In the leveraged buyout described by Joseph, a small group of investors including management would purchase control of CBS and take the company private. They would probably use a combination of cash and borrowed funds obtained using CBS assets as collateral, with a plan to repay the borrowed funds out of the future cash generated by the company's operations or through the sale of certain assets.
Joseph's firm, Drexel Burnham, is the Wall Street investment bank that has become the leader in selling high-yield "junk bonds" to finance hostile takeovers, including some of the highly publicized raids on major oil companies. Joseph said his firm turned down Turner's request to represent him in his bid for CBS because "He, Turner, is not perceived as being the kind of stable management you want running a highly leveraged $5 billion enterprise." Turner's financial adviser is E. F. Hutton, a firm that Joseph said does not have experience financing hostile takeover bids using junk bonds.
Turner's bid for CBS, which includes no cash, offers CBS stockholders a complex package, including 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. Turner is waiting for government approval before taking his proposal to CBS stockholders.
CBS Senior Vice President William Lilley III responded to Joseph's analysis yesterday by saying, "I think there is not a serious financial analyst in the Wall Street community that believes the Turner proposal at $175 a share, if implemented, would result in anything but a bankrupt company within three or four years." CBS' financial adviser Morgan Stanley & Co. told Wall Street analysts last week 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.
Joseph also said Drexel decided not to represent Turner because "CBS is perceived as being a well-run company . . . I know how much aggravation I get when we attack what is perceived as a badly run oil company. I'm not anxious to find out how hot it would be if we attacked a major media company . . . It seemed to us it wasn't a sensible thing to attack, especially on behalf of Turner. Had GE come to us, I would have reacted differently, I guess."
Joseph said that Drexel analyst John Reidy has estimated that the liquidation value of CBS is about $200 a share, significantly higher than other recent Wall Street estimates. CBS stock closed yesterday unchanged at 105 1/4.