NEW YORK, DEC. 12 -- CBS Inc. said today that it will spend up to $2 billion to buy up to 44 percent of its stock from shareholders at $190 a share.
The broadcasting giant, which has nearly $3 billion in cash in its treasury to spend, said it believes the stock buyback is the best use of its cash and will leave it with hundreds of millions of dollars to make acquisitions of broadcast properties should good opportunities arise. As expected, the company also said that Laurence A. Tisch, its chief executive officer, was elected chairman, replacing CBS founder and chairman William S. Paley, who died in October.
CBS stock jumped $5.67 1/2 to $175.50 on the New York Stock Exchange today, well below the $190 offered price. While analysts said the tender offer was bullish for the stock price, the company also disclosed significant negative financial news with its announcement.
CBS said it expects earnings to decline in 1991 and that it expects the CBS television network to post a loss because of weak advertising and hefty spending on sports programming. The company also said that it intends to reduce its stock dividend by an amount that has yet to be decided and that the company's ill-fated deal to cover Major League Baseball will cost it $170 million in the fourth quarter of this year, when it also expects to post a loss from operations.
In response to the dismal news and the elimination of the cash cushion, the credit rating agency Standard & Poor's said hundreds of millions of dollars of outstanding CBS bonds may be riskier than it previously thought.
For the last two years, CBS had been scouting around for a big broadcast property to purchase, but it has been stymied by the poor business environment in the industry. CBS acquired most of the cash when it sold CBS Records to Sony Corp. in 1987 for $2 billion. It also has sold its book, magazine and music publishing units.
With the extensive cash it had on hand, a CBS spokesman said, shareholders began "nagging to participate in some of that cash." Tisch, the major CBS shareholder, said in a statement that at the end of the tender offer, CBS will still have $800 million in cash, which will allow it to be "flexible" about buying "additional broadcast properties when suitable opportunities arise."
The tender offer also was designed in part to enable Paley's estate to raise up to $109 million in cash to help pay estate taxes.
The offer, for up to 10.625 million of CBS's 23.7 million outstanding common shares, is to be launched in a few days and expires on Jan. 22. An important feature of the tender offer is that, if it is fully subscribed, there will be no change in the percentage of the company held by the Tisch family's Loews Corp. or the Paley estate. Loews, controlled by Tisch and his brother Preston R. Tisch, owns 24 percent of CBS. The Paley estate owns 5.5 percent.
Wall Street analysts who follow CBS said the tender offer represented a bet by the company that CBS's fortunes, and stock price, would improve in the future, and thus make it worthwhile for the company to retire its own shares. In addition, the company was gambling that interest rates would decline, and thus reduce the value of holding cash.
"If you're as bullish as Mr. Tisch has been ... you believe that you're going to get much higher returns by investing in the company rather than investing in cash," said Christopher P. Dixon, an entertainment and broadcasting analyst at Kidder, Peabody & Co. here.
Another analyst, at the Baltimore firm of Legg Mason Wood Walker Inc., said CBS stock had been undervalued for a long time, owing to its third-place ratings rank among the major television networks, and that eventually it would do better. "The network business is a cyclical business. At some point, CBS's turn will come again," said the Legg Mason analyst, who asked to remain unidentified.
Nevertheless, the CBS announcement offered relatively little fuel for hopes, analysts said. Clarifying the size of losses expected from its baseball contract, the company said its fourth-quarter results would include an after-tax operating loss of $55 million and a further $115 million after-tax charge to cover anticipated losses for the remaining three years of the pact.
In predicting a net loss for the quarter, CBS said its results also were adversely affected by "lower than anticipated demand" for television advertising owing to "the downturn in the national economy" and increased news coverage costs as a result of the Persian Gulf crisis.
CBS said it expects to reduce its dividend, currently paid at a quarterly rate of $1.10 per share, "in light of the repurchase of shares and the outlook for 1991."