Ted Turner's hostile bid to acquire control of CBS Inc. could be frustrated by a bill that appears likely to pass the New York state legislature later this week.
The bill, which has bipartisan support, would place restrictions on hostile, non-cash bids for public companies incorporated in New York.
For example, it would require a bidder, such as Turner, to get the approval of directors and stockholders before purchasing shares to increase his stake in CBS beyond 20 percent, according to legislators familiar with key provisions.
"I would suspect that the bill will be passed within the next few days," said New York State Sen. Jay Rollison (R-Poughkeepsie), one of the bill's sponsors. "This is a bipartisan effort. There seems to be essential agreement that we should be taking this route."
An aide to Rollison said CBS has been aggressively lobbying to get the bill passed this week. However, the bill, which also includes provisions to ensure that all shareholders receive the same price in a hostile takeover, was originally proposed earlier this year by the Business Council, a New York association that represents corporations in the state.
Turner's takeover bid would be affected by the bill because the offer includes no cash. Instead, he offers CBS shareholders a complex package, including high-yielding, risky securities known as junk bonds, in exchange for their stock. Turner's proposal includes a plan to help finance the proposed takeover by selling many of CBS' assets, including the company's publishing and record operations.
Turner, who mailed his proposal to CBS stockholders earlier this week, does not intend to purchase any CBS stock until after he receives Federal Communications Commission approval, which is not expected before this fall.
"We believe that those provisions of the bill which are directed toward greenmailers, corporate raiders and fair dealing with shareholders in a two-step transaction are laudable," said Turner lawyer George A. Vandeman.
"However, other provisions of the bill make virtually impossible unsolicited, non-cash offers. These provisions, designed to entrench management, are, we believe, unconstitutional and violate basic shareholder rights," he said.
"If the bill is passed in its present form, which would apply retroactively to Turner's pending exchange offer, the proponents of this bill can count on a swift constitutional challenge on its face and as applied to the offer. We are confident that the courts will hold the proposed law unconstitutional on either or both grounds," Vandeman said.
"This legislation is unfair to the extent that it singles out one company -- Turner Broadcasting -- and a business deal that is already well under way," he said. "We don't think that the legislature should be used by one company -- CBS -- to change the ground rules midstream and disrupt an ongoing business transaction. The legislature certainly may seek to affect overall policy relating to the conduct of business in New York state, but when a piece of legislation is frankly designed to impact one particular business transaction already under way, we think it is a distortion of the democratic process, as well as unconstitutional."
CBS officials declined to comment on the legislation.
Earlier this week, a federal court in Missouri ruled that Missouri state legislation designed to block Carl Icahn's hostile takeover bid for TWA is unconstitutional.