AND DAVID USBORNE
A merger between Time Warner and Turner Broadcasting looked more likely last night, as sources confirmed that a "broad outline of agreement" had been reached.
A Time Warner source said: "There are still many details to iron out, but a broad outline has been agreed by all parties." He cautioned, however, that formal confirmation was not expected until after the bank holiday weekend in the US, and that the agreement could still unravel.
The deal, which would create the world's largest entertainment company, was first made public on Wednesday. Under the proposal, Time Warner would offer shares worth more than $8bn for the 81 per cent of Turner it does not already own.
Last night's tentative agreement was reached following negotiations between Time Warner chief executive Gerald Levin and John Malone, the chief executive of Tele-Communications Inc. (TCI), which owns 21 per cent of Turner Broadcasting. Mr Malone, who could veto the deal, is believed to be key to the success of the merger. Mr Levin said he had had "very constructive discussions" with Mr Malone but refused to elaborate.
Despite the tentative agreement, the fate of TCI's own stake in Turner remained uncertain. The holding would normally translate into an 8 per cent stake in Time Warner under the terms of the share offer, but that would exceed ceilings set under the federal laws covering the cable industry.
Based in Denver, Colorado, TCI is America's most extensive cable systems operator and an arch rival of Time Warner's own cable systems division, which ranks number two. Even if it wanted to, TCI could not own more than 5 per cent of Time Warner voting stock.
Sources confirmed the parties were discussing how to structure the offer to avoid offending regulators. Solutions under consideration include issuing non-voting stock to TCI in return for its Turner shares.
In addition, Mr Malone is believed to have insisted on ironclad guarantees that his cable company would continue to carry Mr Turner's extensive stable of broadcast channels in the event that Time Warner's offer is successful.
Mr Malone, a respected if tough negotiator, is also believed to have met Rupert Murdoch in New York yesterday, to discuss the Time Warner situation. The two men, who have met several times before, are rumoured to be looking at ways to jointly win control of CNN, the cable news network that is at the heart of Mr Turner's empire. Mr Murdoch's News Corporation owns 40 per cent of BSkyB, the UK pay-TV broadcaster that produces Sky News, a 24-hour news service similar to CNN.
There was also speculation that General Electric's NBC network might revive a bid for Turner Broadcasting, following failed efforts to win the company earlier this year.
The rumours have excited Wall Street, with the media sector hogging the spotlight. But while there was a generally warm response to the Time Warner proposal among analysts, some did express concern about the general level of takeover activity.
The $19bn takeover of ABC/ Capital Cities by Disney last month, and the $5.4bn offer by Westinghouse for national network CBS now before shareholders, suggested the mania might be reaching ludicrous proportions.
The Time Warner bid also has the potential for future conflict, given the larger-than-life personalities involved.