Big CBS Stockholders Cool to Turner Offer

Big financial institutions that own CBS stock reacted unenthusiastically Friday to cable-television entrepreneur Ted Turner’s debt-loaded bid for CBS. Meanwhile, the shares gained 75 cents to close at $107 in New York Stock Exchange composite trading, stabilizing slightly after a $3.50 loss following the announcement of Turner’s bid Thursday.

“We view it skeptically,” Virgil Cumming, vice president of the College Retirement Equity Fund, said of the Turner proposal, describing it as “nine different pieces of paper and no cash.” CREF, which manages accounts for a number of college pension funds, holds about 234,700 CBS shares.

Two hundred institutions held 61.8% of the CBS shares at the end of 1984, according to Computer Directions Advisors, an information service. That figure may be deceptive, however, because the stock has been actively traded on speculative sentiment since early March.

Many institutional investors said they had sold some of their stakes in that period to lock in gains from the speculative run-up. An unknown percentage of CBS shares is in the hands of such short-term stockholders as arbitrageurs.

Sell Off Some Assets

Turner said Thursday that he would offer a package of high-yielding bonds, known informally as “junk” bonds, and preferred and common stock in exchange for at least 67% of CBS shares. His goal is to merge his company, Turner Broadcasting, into CBS and sell off the bigger network’s radio stations and non-broadcast properties. Current CBS holders would end up with 50% of the new company’s equity, but Turner would retain 73% of the voting rights, according to his filings with government agencies.

Turner valued his basket of securities at $175 per CBS share, but Wall Street analysts’ estimates placed it at between $120 and $165. Turner’s version would give his entire deal a value of $5.4 billion, to be financed from CBS cash flow and assets.

He backed his bid with five lawsuits in courts around the country. He asked a federal court in Atlanta to overturn a CBS bylaw prohibiting shareholders from calling special shareholder meetings. The bylaw would prevent Turner from replacing board members until next spring at the earliest, even if he gains voting control of the company.

Other lawsuits in New York, South Carolina, Nebraska and Oklahoma challenge anti-takeover laws enacted in those states. The laws generally set standards for disclosures by bidders.

Turner won a temporary restraining order Friday from a federal judge in Nebraska blocking CBS from invoking Nebraska’s anti-takeover law, which requires an informational filing to be made the day a tender offer is publicly announced.

Reorganized Toy Unit

Institutional shareholders of CBS polled Friday generally had high praise for the company’s management, including Chairman and Chief Executive Thomas H. Wyman. CBS management recently reorganized its toy division, which suffered considerable losses in 1984, and has leveraged its more recent capital investments by making them through joint ventures with other companies, a technique that minimizes potential losses.

These include CBS/Fox Video, a partnership with 20th Century Fox Film Corp. to market videocassettes, and Tri-Star Pictures, a movie production company formed by CBS, the Columbia Pictures division of Coca-Cola and the Home Box Office unit of Time Inc.

“We think they’ve made some nice strategic moves to eliminate areas where they’ve had some problems,” said Joseph McNay, president of Boston-based Essex Investment Management Co., which manages more than $1 billion in pension and other institutional assets and holds about 260,000 CBS shares.

Institutional managers were wary of Turner’s package of bonds and stock, which would drain be tween $734 million and $2.4 billion a year from the company’s annual cash flow over the first 10 years of a merger to cover the transaction’s interest, principal and preferred dividends.

“We’re certainly not interested in those damn bonds,” said Bruce Hineman, a manager at the Texas Teachers Retirement System, which holds about 150,000 shares after cashing in some this year to lock in profits from this spring’s sharp run-up in the price of CBS stock. In any event, because the system is restricted by investment rules to holding only investment-grade securities, it would have to sell much of Turner’s package within about a year of a merger, said George Reagan, the system’s director of research.

Turner’s debentures failed to excite even fund managers free of such restrictions.

“I don’t like the idea of all that paper and all the debt load,” said the manager of one institutional fund who asked to remain unidentified.

Although Turner’s package would produce interest and dividends of $21.70 a year, compared to the $3 dividend paid on CBS shares, this manager remarked: “Mr. Turner is going to leverage the assets of this company substantially and there’s no guarantee that pay-out would be assured.”

Turner’s registration statement with the Securities and Exchange Commission acknowledges that covering the transaction’s huge debt would require divestiture of large chunks of the company’s business and possibly a cash infusion from outside investors.

Many institutional investors said they planned to hold their CBS shares in anticipation of a counter-bid from another investor or of move by the company to fend off Turner’s offer.

“Our real interest is the potential for a white knight,” Reagan said. A “white knight,” in takeover fables, is a company that merges with a takeover target in a friendly transaction to turn away a hostile bidder.

“Turner may put something in motion,” said another institutional money manager.