The Federal Communications Commission yesterday gave Jack Kent Cooke approval to proceed with a hostile takeover bid for Multimedia Inc. by approving the use of a novel takeover technique.
The unprecedented FCC action is expected to encourage additional hostile takeover bids for media companies by giving potential acquirers a new tool. Before yesterday's decision, the FCC had no mechanism that bidders could use to speed up lengthy proceedings prior to the transfer of a broadcast license, a situation that discouraged some hostile takeover offers.
Atlanta broadcaster Ted Turner immediately reacted by asking the FCC to allow him to use the same technique in his hostile takeover bid to acquire CBS Inc. Sources said the FCC also plans to allow Turner to use the technique so he can proceed with his offer.
FCC Chairman Mark S. Fowler, who has repeatedly said the agency should be used "neither as a sword nor a shield" for hostile media takeovers or proxy fights, said he was satisfied with the agency's decision.
"We are required to comply with the Communications Act. . . . I am satisfied we have done so," he said. "It is important to expedite these matters and be as neutral as we can."
The novel takeover technique approved by the FCC yesterday involves the use of a two-step approach. First, the FCC grants interim approval to proceed with a hostile bid, and then a trustee is appointed to hold tendered stock until the hostile bidder receives final FCC approval to complete the acquisition. The advantage of the approach, which could enable Cooke and possibly Turner to begin buying shares in Multimedia and CBS almost immediately, is that bidders do not have to wait until they receive final FCC approval to proceed with their purchase of shares. Final FCC approval to transfer broadcast licenses takes a minimum of 45 days.
Yesterday's FCC action was emphatically denounced by Henry Geller, director of the Washington Center for Public Policy Research, who said it constituted a tacit approval of Cooke's bid for control before the public has a chance to comment.
"I think it's a disaster," said Geller. "You can't unscramble the egg."
James H. Quello, the only dissenting commissioner, also denounced the decision. "I think the commission's responsibility is first to protect the public interest. I think it is improper to oust the president of a company before considering a successor. . . . It favors the hostile bidder," he said.
Cooke's lawyer, Hogan & Hartson partner Jay Ricks, said: "We think the FCC has taken a logical, but novel, step in the right direction in allowing stockholders of corporations to choose which purchasers of their stock they wish to go with."
FCC mass media bureau chief James C. McKinney said the action "was necessary to provide a level playing field" for both Cooke and Multimedia. Cooke owns about 10 percent of Multimedia, a South Carolina communications company, and has said he would like to buy the rest of the company for $65 a share. The company has rejected his billion-dollar bid, saying it favors a previously announced buyout plan that includes members of management.
McKinney said the FCC decision would allow Multimedia shareholders to consider both plans at the same time in the event that Cooke decides to take his offer to Multimedia stockholders through a hostile tender offer.
Cooke's trustee, former Minnesota Sen. Eugene McCarthy, is authorized as trustee for 180 days, at the end of which time the FCC could extend or terminate the authorization, as needed. Turner yesterday asked the FCC to approve former Maine Sen. William D. Hathaway as his trustee.
The FCC put a number of restrictions on Cooke and his trustee. These would take effect immediately in the event Cooke launches a hostile tender offer for Multimedia.
Until final FCC approval of broadcast license transfers, both Cooke and McCarthy are barred from nominating board members and must communicate with each other about the tender offer in writing. Cooke cannot be involved in the management or operations of the company and must place his 10 percent share in the company into the trust, McKinney said. The trustee has an obligation to "maintain the status quo of the corporation," and no substantive changes may be made in the trust agreement.
"Until [Cooke] has control of the corporation, he can't take down the management," McKinney said. If the FCC denies the final transfer of control to Cooke or if Cooke does not succeed in gathering enough shares to control the company, the shares held by the trustee would have to be sold to an FCC-approved buyer.
Should Turner's trustee proposal also be approved this month, "it's obvious the considerations involving the trustee for Turner would be the same as in Multimedia," said an FCC official.
Turner earlier had asked the commission to accelerate final approval so he could proceed with his bid for CBS by July 15, enabling CBS shareholders to consider his takeover offer at the same time they are considering a CBS stock buyback plan.
While the FCC is expected to grant Turner's request to use a trustee so he can proceed on an interim basis, the conditions under which Turner will have to operate are expected to be far more restrictive than those he has proposed.