Maverick broadcaster Ted Turner launched a $3 billion bid for CBS Inc. yesterday, setting the stage for an unprecedented battle for control of a major television network.
Shortly after announcing his offer, Turner filed several suits around the country in an attempt to deprive the network of some possible legal defenses against a takeover.
CBS has said it will vigorously oppose any hostile takeover bid. However, the company made no assessment of Turner's bid yesterday, saying the offer was too complex for hasty evaluation.
Turner's bid, which includes no cash, offers CBS stockholders a package of securities in exchange for their stock, and includes a plan to help finance the takeover by selling all of CBS's businesses outside of broadcasting.
The securities package, which Wall Street analysts valued at about $150 a share, includes billions of dollars of unrated, high-yielding "junk bonds," a type of financing that recently has been the subject of congressional hearings focusing on the dangers of their use in hostile takeover attempts.
In a federal court in Atlanta, Turner charged that the network's managers violated their duty to stockholders and "conspired to take measures to entrench themselves" with a series of anti-takeover steps, according to the Associated Press.
He demanded a new election for the CBS board of directors and revocation of a new bylaw that allows only the board to call a special stockholders meeting. Previously, such a meeting could be called whenever requested by the holders of at least 10 percent of CBS stock.
In New York, Turner filed a suit seeking to throw out a state law that requires would-be corporate acquirers to file disclosure statements.
Turner's lawyers said they filed similar suits in Oklahoma, Nebraska and South Carolina, challenging state laws that could be used to block or delay his takeover effort.
CBS spokeswoman Anne Luzzatto said the Atlanta lawsuit was "lacking in merit" but did not comment on the other suits.
Fairness in Media, a conservative group supported by Sen. Jesse Helms (R-N.C.), said yesterday that it will do whatever it can to help Turner gain control of CBS. FIM launched a campaign in January to try to get control of CBS to end what it calls the network's "liberal bias."
Turner had discussed the possibility of making a joint bid for control of CBS with Helms and FIM. But Turner said yesterday that he is making this bid on his own.
"We do not intend to make any fundamental changes in the CBS television network," Turner said at a press conference at New York's Park Lane Hotel that was broadcast live on Cable News Network, which he controls. "Instead, we would seek to improve the quality, objectivity, and diversity of CBS programming. I want to make it very clear that Turner Broadcasting is acting on its own and has no connection with any ideological or other group in this transaction."
Turner's bid, for a minimum of two-thirds of CBS stock, will not begin for at least 30 days, during which time the Securities and Exchange Commission will review his proposal. The Federal Communications Commission is examining the plan, while the Federal Trade Commission and the Department of Justice are deciding whether to review any antitrust problems.
On Wall Street, Turner's complex bid got mixed reviews, with most analysts saying that Turner will not succeed and noting that his proposal, financed almost completely by borrowing, would leave CBS weakened by an enormous load of debt on the company's books. CBS has a powerful array of antitakeover techniques at its disposal, including a $1.5 billion line of credit which is available if needed. Analysts said that if Turner's offer gets an enthusiastic response from CBS stockholders, the company's management would attempt its own buyout or arrange a friendly merger with a white knight, such as the General Electric Co.
CBS Chairman Thomas H. Wyman said recently that he believes Turner does not have the "conscience" to own a network. Wyman has made it clear that CBS will use all of the legal and financial resources at its disposal to oppose hostile takeover bids.
CBS stock fell 3 1/2 to 106 1/4 yesterday, a drop attributed to uncertainty over the true value of Turner's bid and disappointment that his offer included no cash.
It is difficult to determine the precise value of Turner's offer because no one knows exactly how the securities he is offering would trade in the public market if his bid succeeds.
Nearly two-thirds of CBS stock is held by institutions, such as pension funds. The largest single shareholder is arbitrageur Ivan F. Boesky, who holds 8.7 percent of CBS stock.
Ted Turner owns 80 percent of Turner Broadcasting Systems Inc., which owns Cable News Network, the WTBS Atlanta Superstation and the Atlanta Braves. The company had revenue of $281.7 million last year and net income of $10.1 million. In comparison, CBS had revenue of $4.9 billion and net income of $212.4 million last year.
For each common share of CBS, Turner is offering $122 principal amount of Turner Broadcasting System fixed income debt securities; $56.49 principal amount of Turner Broadcasting zero coupon notes; one share of Turner Broadcasting preferred stock, and three-quarters of a share of Turner Broadcasting System Class B common stock. Some of the securities carry interest rates as high as 16 1/2 percent, making them attractive for aggressive investors willing to assume greater risk in return for a higher return. Zero coupon securities provide no interest payments, but are sold at a deep discount to give the buyer greater appreciation in the face amount.
Turner's financial adviser in the transaction is E. F. Hutton. Until now, Drexel Burnham Lambert has been the only Wall Street firm to offer junk-bond financing for hostile takeovers, a factor that gives Turner's bid less credibility since this would be the largest junk bond financing ever.
However, investment bankers said yesterday that Hutton appears to have priced the bonds in line with comparable recent buyouts in the broadcasting industry, such as the recent leveraged buyout of Metromedia Inc.
"For several years, we have been very interested in joining forces with one of the three major broadcast networks because of our desire to be number one in our business," Turner said. "To do that, one must have access to all the TV households which are only reachable in today's world by the three major networks.
"Beginning as early as 1981, I met with representatives of CBS concerning the possible acquisition by CBS of our company. On several occasions since, we have tried to have CBS entertain the concept of our companies joining forces. These overtures have been consistenly rejected by CBS's management. Accordingly, we have decided to attempt to have the shareholders of CBS decide for themselves whether they would like to have Turner Broadcasting acquire control of CBS. That is the principal purpose of our proposal."
Until recently, a hostile takeover bid for a major television network or any broadcaster was unlikely because there was a belief that government regulators would block such an attempt. However, the Federal Communications Commission has made it clear in statements to Turner's attorneys and in recent decisions that it will not stand in the way of a hostile takeover bid. The FCC is drafting guidelines to govern its behavior in hostile takeover situations.
Turner has asked the FCC for the approval he needs to gain control of CBS, and the FCC said yesterday it will seek public comment on his proposal. The FCC said its notice will give 30 days for public comment, 15 additional days for replies, and another five days for further replies.
To help finance the buyout and to comply with various federal regulations, Turner said he would dismantle the CBS empire by selling all of the company's owned and operated radio stations, the CBS television affiliate in Philadelphia, and all CBS non-broadcast operations and other corporate assets not considered essential to the broadcast business. Included in those assets Turner would sell is the CBS publishing division, a major force in the industry that recently acquired the Ziff-Davis consumer magazines.
Rep. Timothy E. Wirth (D-Colo.) said yesterday that the FCC should not allow itself to be used as either a shield for CBS management or as a sword for Turner broadcasting. "The FCC must make sure that it is not cheerleader for either side in this battle for corporate control," said Wirth, chairman of the House subcommittee on telecommunications, consumer protection and finance.