Knowledgeable investment bankers have been saying for about two months that Atlanta broadcaster Ted Turner's bid for CBS would force the company to take financial steps that increase its stock price, add debt to its books and make Turner's bid relatively unattractive.
They were right. The $150-a-share buyback plan unveiled by CBS today gives more value to the company's shareholders, doubling the amount of cash dividends and interest payments they will receive annually and raising the stock price. Provisions also were added that block a highly leveraged takeover bid that does not have the support of the company's directors.
One of the important figures behind the development of this plan was CBS Vice President and General Counsel George Vradenburg III. In an interview today, Vradenburg explained the strategy behind the CBS stock buyback plan and the response he expects from Turner.
"We didn't take Draconian steps," Vradenburg said when asked about certain restrictive provisions that prohibit a highly leveraged, hostile takeover of the company. "These are fairly moderate steps."
When asked how the CBS board would respond to a cash takeover bid, Vrandenburg said, "We're prepared to entertain it and examine it on its merits. Having said that, the board still has the view that the company has a bright future and it is not for sale."
Vradenburg said he expects Turner to launch a legal challenge to the CBS recapitalization plan announced today. But if the Atlanta broadcaster, who owns Cable News Network and the WTBS superstation, is not able to block the CBS plan and cannot come up with the cash to make his own offer viable, Vradenburg believes Turner will try to gain control of CBS by launching a proxy fight at next year's annual meeting.
In a proxy fight, an individual or group tries to gain control of a company by soliciting votes for its own slate of directors. It differs from a takeover bid such as the one Turner is currently proposing, in which he tries to gain control of the company by buying shares.
Vradenburg also said that if shareholders are not satisfied with the value of their holding, they can launch a proxy campaign to liquidate the company.
This would result in the sale of CBS assets and the distribution of proceeds to stockholders. Some estimates of the liquidation value of CBS have been above $200 a share.
"This buyback plan falls right into the mainstream of major share repurchase programs of other major companies," Vradenburg said. "Some are under threat of takeover and others are not. It seems to be a fairly conventional thing. Because of the kind of company we are and the Turner matter, we are somewhat more visible. The buyback plan is a way to utilize the balance sheet in order to deliver value to the shareholders."
"If the shareholders of this company ultimately decided that they don't want this company around and they want to liquidate it, they have recourse. There are meetings, and I am confident that if Mr. Turner's offer does not succeed, we may be in a proxy fight next year."
Vradenburg also said that the recapitalization plan adopted by CBS today leaves the company with the financial and legal flexibility it may need in the future.
He said that while the stock buyback is the only major strategic change expected in the foreseeable future, the company has a "great deal of flexibility if it has to do anything else."
Vradenburg said the new restrictions that limit the debt-to-total capital of CBS to 75 percent, and block a hostile leveraged takeover bid like Turner's, were necessary and prudent measures to guarantee the company a sound financial future.
Under the plan, highly leveraged bids that have the support of directors can still succeed because the board can waive the debt restriction.
"If there were a cash offer for the company, it would slide right under those covenants," Vradenburg said. "If there were a substantial cash infusion in the Turner offer, he could continue with his offer."