Atlanta media executive Ted Turner is expected to announce today that he is dropping his hostile bid to acquire CBS Inc., sources said yesterday.
Turner reportedly would give up on CBS as a result of the size, timing and complexity of Turner Broadcasting System Inc.'s proposed acquisition of MGM/UA Entertainment Co. for $1.5 billion in cash.
In addition, one source said Turner was forced to drop his bid for CBS as part of a deal to get the Wall Street firm of Drexel Burnham Lambert Inc. to help him finance the MGM deal. Drexel is the leader in the sale of high-yield securities known as junk bonds, which have been used to finance billions of dollars of acquisitions recently.
Drexel, which refused to represent Turner in his hostile bid for CBS, already is involved in this deal as the financial adviser to MGM/UA.
Although Turner said last week that he would attempt to devise a new plan to gain control of CBS after his initial one died, sources said it became clear that he could not proceed with both deals. Because Turner viewed the attempt to acquire CBS as a long shot that had only about a 10 percent chance of succeeding, he decided to "guarantee the survival of his company" by acquiring MGM instead, sources said.
Turner is hoping that he will be able to hold down the cost of obtaining programming for his WTBS-Superstation -- the cable channel that broadcasts a variety of movies and sports to more than 30 million subscribers -- by acquiring MGM's 2,200-film library. The MGM film library includes "Gone With The Wind," and "The Wizard of Oz."
By acquiring the MGM studio, Turner would fulfill his goal of expanding Turner Broadcasting's stake in the production and distribution of new programming. In addition to the Superstation, Turner Broadcasting owns Cable News Network, the Atlanta Braves baseball team and the Atlanta Hawks basketball team. The company had revenue of $281.7 million and net income of $10.1 million last year.
MGM lost $66.2 million on revenue of $478 million in the first nine months of its current fiscal year. In fiscal 1984, the company had revenue of $706.9 million and net income of $34.7 million.
Sources said another reason Turner is expected to abandon his bid for CBS is that Federal Communications Commission rules prohibit television networks from syndicating selling programming to stations. As a result, acquiring CBS would greatly diminish the value of MGM's library and future production, a move that would be financially impractical for Turner, sources said.
Turner plans to dismantle MGM/UA immediately by selling United Artists' assets to Kirk Kerkorian for $470 million. Kerkorian, MGM/UA's largest stockholder with 50.1 percent, will acquire the 2,400-film UA library and 50 percent interest in a company that distributes new releases. Kerkorian then will offer former MGM/UA stockholders the chance to buy stock in the new UA.
Sources said that Hollywood executives are skeptical about Turner's ability to complete the MGM transaction. They believe that, even with Drexel's help, he will have difficulty financing the deal because of its relatively high price, sources said.
Turner had attempted to acquire CBS in a controversial noncash takeover bid that died last week when he could not stop CBS from completing a $954.8 million stock buyback that included provisions restricting the amount of debt the company can have on its books.
Turner was unable to persuade a federal judge in Atlanta that CBS should not be allowed to proceed with the stock buyback because it unlawfully entrenched management.