Media giants discuss $8bn sale

Time Warner negotiations with Ted Turner in US 'move on more quickly than expected'

MATHEW HORSMAN

London

and DAVID USBORNE

New York

A deal that would create the world's largest entertainment company could be signed tomorrow, following talks between US giant Time Warner and Turner Broadcasting System, owner of the Cable News Network.

The two media companies yesterday confirmed speculation that they were discussing an $8bn (pounds 5.2bn) offer from Time Warner for all the shares of TBS, the entertainment company founded by Ted Turner.

"This has moved on more quickly than we might have expected," a source close to the companies said.

Together Time Warner and TBS would have revenues of almost $18bn, bigger than the combined turnover of Disney and ABC/Capital Cities, which agreed a merger earlier this month. Time Warner, which holds 18 per cent of TBS, owns Warner Bros film studio, makers of the box office hit Batman, magazines ranging from Time to Sports Illustrated to Fortune and extensive cable interests. It is also owner of several record labels and the highly successful HBO cable film network.

TBS is best known for CNN, founded 10 years ago by Mr Turner. The company also owns the Cartoon Channel, Turner Entertainment and a "super station" in Atlanta, Georgia.

The companies refused to confirm details, despite extensive speculation. In a terse statement they said: "Significant issues remain to be negotiated and there can be no assurance that agreement will be reached or a transaction consummated."

Among many unknown factors is the attitude of John Malone, the chief executive of Tele-Communications Inc, TCI, the cable systems company that has a 21 per cent shareholding in Turner Systems.

According to analysts in New York Time Warner is offering between 0.7 and 0.8 shares for each share in TBS, for the 81 per cent of TBS it does not own. At just over $41 per Time Warner share, the deal would be worth more than $8bn. Turner shares rose $6 to $30 in early trading in New York, on news that the negotiations were under way. "This would be a rich deal", John Reidy, a media industry analyst at Smith Barney, said, noting that the offer values TBS at roughly 16 times projected 1996 earnings.

Other analysts said the deal made sense, given how well the assets of the two companies would fit together. A substantially larger presence in filmed entertainment was one clear advantage to Time Warner.

Mr Turner is believed to have been offered the position of vice-president, in charge of entertainment. The combined operations would include four Hollywood film production companies - Warner Bros, Turner Pictures, New Line Cinema and Castle Rock Entertainment. Mr Turner was said by friends to be "enthusiastic" about the merger, which was proposed to him directly on 19 August at his Montana ranch by Gerald Levin, the chief executive of Time Warner. Mr Turner has a reputation for changing his mind, however.

Some analysts speculated that Mr Turner would find it difficult to work under Mr Levin after 15 years at the helm. Despite stumbling badly in 1986, after the acquisition of MGM, Mr Turner has built a highly profitable empire.

For Mr Turner the deal would mean a humbling of his ambitions as in recent months he has been seeking finance to launch a bid for his own broadcast network. Time Warner had been one of the chief stumbling blocks to a plan by Mr Turner to counter bid for CBS, the US network that is on the receiving end of a $5.4bn agreed offer from Westinghouse.

A TBS insider said Time Warner's opposition to the CBS buyout plan had "softened" but it was unclear whether a merger of Time Warner and TBS would end any attempt to counter bid. "Anything can happen," the insider said.

He added, however, that any bid might face regulatory hurdles, particularly in light of intense merger activity recently.

Mr Turner had apparently sought financing support from Microsoft, the software development company run by Bill Gates, and the French media company, Havas, in order to build a war chest to bid for CBS. Rupert Murdoch's News Corporation had also held talks with TBS and TCI.

Mr Murdoch was believed to be interested in the synergies between CNN and Sky News, his 40 per cent owned 24 hour satellite news service based in the UK.

Mr Levin reportedly would attempt to finance the takeover by issuing fresh stock, rather than adding to Time Warner's debt load of $15bn.

While this would threaten to weaken the price of Time Warner stock, company executives are apparently confident that such a dilution would be offset by the prospect of additional earnings from the Turner assets.

Comment, page 17

How the two organisations line up

Turner Broadcasting System

Revenues (1994) $2.8bn

Pre-tax profits (1994) $346.9m

Broadcasting

WTBS Atlanta

CNN

The Turner Network

The Cartoon Network

Turner Classic Movies

Film Production

Turner Pictures

Real Line Cinema

Castle Rock Entertainment

Time Warner

Revenues (1994) $15.9bn

Profits (1994) $2.9bn

Magazines

Time

Sports Illustrated

People

Fortune

Book Publishing

Warner Books

Little, Brown

Film, TV Production

Warner Bros

Music

Warner/Chapell

Elektra

Atlantic

Also cable network in the US

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