The battle for control of CBS Inc. moves into the federal courts this week where Atlanta broadcaster Ted Turner will attempt to stop CBS from buying back $954.8 million worth of its own stock.
Turner is seeking an injunction against the buyback plan. If he fails, it probably would end his current bid for the network.
CBS plans to repurchase 21 percent of its stock at $150 a share. If Turner fails to block the repurchase plan, his noncash takeover bid for CBS will no longer be viable. The CBS plan includes provisions that restrict the amount of debt the company can have on its books. Turner's takeover bid, which relies primarily on borrowed funds, would violate several of those provisions.
Turner has vowed to continue his takeover bid even if his current offer fails.
In hearings scheduled to begin Wednesday in Atlanta, Turner will ask Judge Robert L. Vining of the U.S. District Court for the Northern District of Georgia to block the CBS plan on the grounds that it is designed to entrench incumbent management, regardless of the best interest of CBS stockholders. Besides asserting that CBS management is unlawfully attempting to discourage takeover bids for the company, Turner also charges that the CBS plan gives the company's founder and director, William S. Paley, "unjustifiable special benefits" not available to other shareholders.
While CBS is offering other stockholders $40 a share in cash and $110 a share in notes for their stock in an offer that expires at the end of the month, the company is offering Paley $150 a share in cash for his stock. Turner also points out that the offer to Paley is open for three years, while other shareholders must tender their shares this month.
"In their publication entitled 'Offer to Purchase by CBS Inc.,' no business purpose is explained or even asserted for this agreement with Paley ," according to Turner's lawsuit. "Defendants' CBS' only justification for the agreement is that it is designed to circumvent purportedly adverse tax consequences which would arise for Mr. Paley if he tendered his shares in connection with the CBS exchange offer. Such unabashed favorable treatment for Mr. Paley, an insider who dominates the CBS board of directors, is completely unwarranted and blatantly discriminates against small shareholders whose interests are completely disserved by this agreement. . . .
" The Paley agreement provides Mr. Paley with price protection against future fluctuation in the price of CBS stock and provides him with an 'all cash' deal not offered to ordinary CBS shareholders. It simply and conclusively demonstrated that self-interest, not the interests of CBS shareholders, motivates the CBS board and taints their actions," the lawsuit says.
Turner charges that other steps taken by CBS also are unlawful and designed to entrench management to the detriment of the company's shareholders. Without seeking shareholder approval, the CBS board amended its bylaws in April to eliminate the right of holders of 10 percent of the company's stock to call a special meeting of shareholders, Turner charges. The impact of this bylaw change, Turner notes, is to discourage hostile takeover bids, since a bidder cannot complete a takeover without obtaining shareholder approval. Instead of being able to call a special meeting to obtain such approval, Turner says a bidder would have to wait until the CBS annual meeting, a costly delay that could make many hostile takeover bids economically impractical.
CBS also has entered into revolving credit agreements with lenders that entrench management by automatically triggering default provisions if there is a change in control of the company, Turner charges. Furthermore, Turner states, CBS has attempted to entrench management by falsely claiming in the media that he lacks the financial capability to acquire control of the company. Turner says that CBS failed to disclose in a June 28 press release that its financial advisor, Morgan Stanley & Co., had submitted analyses and projections demonstrating that his takeover bid is viable, given certain assumptions.
Turner says the CBS stock buyback plan, the company's most dramatic antitakeover maneuver, contains "numerous 'poison pill' and other antitakeover provisions which are designed to eliminate the possiblity that any entity making a leveraged takeover bid, such as Turner , could successfuly acquire control of the company. Signficantly, none of these onerous provisions are triggered if incumbent management continues to operate CBS."
Sources close to Turner have said that if he is able to raise the cash needed to sweeten his takeover bid, he probably will wait until sometime this fall to unveil the new proposal.
These sources said Turner would wait until after he receives Federal Communications Commission approval to unveil a new bid, if he can raise the funds. His attempt to raise $2.5 billion in cash earlier this month failed, sources said.
Turner needs FCC approval to proceed because the commission must approve any change in control of broadcast licenses held by CBS. Turner and CBS Chairman Thomas H. Wyman will appear before the FCC next week to debate how quickly the FCC should proceed. Knowledgeable sources believe Turner will receive FCC approval to proceed sometime this fall, and FCC Chairman Mark S. Fowler has said he would like to complete the review of Turner's application by sometime in September, if lengthy "evidentiary hearings" are not required.
CBS has been the target of takeover speculation since January, when a conservative group supported by Sen. Jesse Helms (R-N.C.) said it wanted to gain control of the company to end what it believes is a "liberal bias" in CBS Network news coverage.