No-Cash CBS Bid Made by Turner : Wall Street Skeptical of Audacious $5.2-Billion Plan to Buy TV Network

Atlanta cable television entrepreneur Ted Turner, taking an audacious gamble to realize his dream of running a major TV network, Thursday offered to acquire CBS without paying any cash.

Instead, he offered CBS shareholders a risky package of notes, bonds and stock in his Turner Broadcasting System that he valued at $175 a share, or $5.2 billion. The plan drew immediate skepticism on Wall Street, where the consensus was that Turner would fail.

Turner’s bid, if it were to succeed, would be the first hostile takeover of a television network and one of the largest corporate acquisitions in history. Following the proposed “friendly” merger of American Broadcasting Cos. with Capital Cities Communications announced last month, it would be the second change of network ownership ever.

The proposal envisions a partial liquidation of CBS through sale of its Philadelphia television station, its 14 radio stations--including KNX-AM and KKHR in Los Angeles, and non-broadcast units such as CBS Records and CBS Publishing.

But, even if it fails, the bid could lead to a significant restructuring of CBS, possibly through a defensive merger with another company. And Turner’s move may focus more attention in Congress on the controversial use of “junk bonds,” such as those Turner proposes to issue, to finance hostile corporate takeovers. Such high-yield, low-rated securities are sold to speculators and others who gamble that a successful takeover will bring them huge rewards.

Financial analysts and others familiar with the broadcast industry said that the terms and conditions of the offer and the certainty of a vigorous defense by CBS make its prospects dim, at best. Many analysts valued the package of seven issues of debt securities and preferred and common stock at $165 a share, and some placed it as low as $120 a share.

Among the risks, according to Turner’s own registration statement filed with federal authorities, is the prospect that a merged CBS-Turner Broadcasting System will be unable to pay interest on the more than $5 billion in debt the merger would require. Turner said that that debt would have to be reduced after merger by selling off pieces of CBS. Turner said he would also “entertain offers from prospective investors interested in making cash investments” in the merged company.

CBS executives, citing the complexity of the offer, refused to comment Thursday. But the company’s management has issued vivid signals that it will fiercely oppose any takeover bid, particularly one from Turner. When asked at Wednesday’s annual shareholders’ meeting in Chicago whether he considered Turner “moral” enough to operate the network, CBS Chairman Thomas H. Wyman replied, “I don’t think so.”

CBS Could Hike Debt

Financial professionals said that CBS is well positioned to defend itself, especially from Turner’s no-cash offer. By using $1.5 billion in new bank credit lines, the company could make an acquisition and add substantially to its debt, thus making it difficult for Turner to pay back the debt he would incur in a takeover. Similarly, a merger with or acquisition by another company could snatch away CBS before Turner’s offer could succeed.

Wall Street analysts said that the Turner bid’s chief perceived weaknesses are its lack of cash for shareholders and his lack of credible financial backers. Turner reportedly sought financial support from such financiers as former Treasury Secretary William E. Simon and a number of investment banks, but none appeared. In the end, he made the offer alone, with only the assistance of E. F. Hutton & Co., his financial adviser on the deal.

CBS does have some vulnerabilities. Those include the absence of debt on its balance sheet, which makes its unencumbered assets available to pay off an acquirer’s debt (by contrast, Turner’s company has a relatively high debt level), and its lack of a major shareholder to help stabilize ownership. CBS’s two biggest shareholders are its founder, William S. Paley, with 6.7%, and Ivan F. Boesky, a stock trader who has acquired 8.7% since rumors of a possible takeover began circulating in February.

Conditions of Bid

Turner conditioned his bid on his receiving at least 21 million CBS shares, or 67%. Other conditions include approval by the Federal Communications Commission and the invalidation of a CBS bylaw adopted this month that prevents even majority shareholders from calling for special meetings of shareholders. The bylaw, which Turner challenged in a New York court on Thursday, would keep him from seizing control of the CBS board for at least another year even if he won voting control of the stock.

The stock market, which has traded CBS stock in a speculative frenzy for nearly two months, reacted to Turner’s bid with some disenchantment. In New York Stock Exchange trading, CBS shares dropped $3.625 to close at $106.125. Shares of Turner Broadcasting System, Turner’s principal company, were unchanged at $24 in over-the-counter trading.

Owns ‘Superstation’

Turner Broadcasting had net income of $10.1 million on revenues of $281.7 million in 1984, its second year of profitability in the last five. Its most profitable unit was WTBS, an Atlanta-based “superstation” that is transmitted to cable subscribers around the country. CBS had $212.4 million in profits on revenues of $4.9 billion in 1984.

At a New York press conference at which he refused to answer questions, Turner cited his long-standing desire to reach the television audience available only to the major networks. He said that his overtures to CBS about a possible merger with his company have been “consistently rejected by CBS’s management” since 1981. “Accordingly, we have decided to attempt to have the shareholders decide for themselves whether they would like to have Turner Broadcasting acquire control of CBS.”

In a prepared statement, Turner said that he has “no plans to make fundamental changes in the CBS television network and its owned-and-operated television stations.” But Turner Broadcasting would “seek to improve the quality, objectivity and diversity of CBS’s programming.”

Backed by Helms Group

Turner’s bid immediately received the support of Fairness in Media, a conservative group affiliated with Sen. Jesse Helms (R-N.C.) that has itself promoted a takeover of the network to correct what it calls the “liberal bias” of CBS News. “We will do everything we can to help it succeed,” said Fairness in Media co-founder James P. Cain from his Raleigh, N. C., office. But Turner stressed that he is making his bid alone, without any ideological backing from any group.

Turner would exchange, for each share of CBS common stock, a package of highly risky securities and Turner Broadcasting common stock. The package includes a seven-year senior note paying 15% with face value of $46, a 15-year senior debenture paying 15.5% with face value of $46, four zero-coupon notes (that is, paying no current interest but issued at a discount to face value) and a 20-year senior subordinated debenture paying 16.25% with a face value of $30.

The package includes one share of preferred stock with a stated value of $16.50 a share and three-quarters of a share of Turner Broadcasting common stock.

The securities have a current yield in interest and dividends of $21.70 per share of CBS, which currently pays a dividend of $3. That sevenfold enhancement of current value is the key lure for shareholders. “I’d hate to say it’s a no-lose offer, but an institution (such as a pension fund) might say, ‘We’re improving our income by seven times’ and take it,” remarked Edward Atorino, broadcast analyst for Smith Barney, Harris Upham.

Times staff writers Penny Pagano and Gaylord Shaw in Washington, Robert E. Dallos in New York and Thomas B. Rosenstiel in Los Angeles contributed to this story.

Ted Turner does things the hard way. Details in Business.