CBS Attacks Turner Offer, Files Lawsuit

Deriding the offer as “grossly inadequate” and “financially imprudent,” CBS on Monday urged its shareholders to reject Ted Turner’s $5.4-billion “junk bond” merger bid for the broadcasting giant.

It also filed a lawsuit accusing Turner of violating securities laws and contributing to a manipulation of the CBS stock price in the weeks before he made his offer last Thursday.

The company’s first substantive reaction to Turner’s bid included a filing with the Securities and Exchange Commission, a letter to shareholders over the signature of its chairman, Thomas H. Wyman, and the lawsuit filed in federal court here.

The counterattack included a claim in the letter to shareholders that Turner has made racist and bigoted remarks in public that “would undermine the CBS network’s present broad acceptance by the American public” in the event of a merger. CBS did not amplify the charge.

In a formal statement, the network said its directors had rejected Turner’s offer “firmly and unanimously.” The company’s financial advisers, the investment banking firm of Morgan Stanley & Co., called the proposal “financially imprudent” and questioned whether the merged companies would generate enough cash to cover the principal and interest on the bonds that Turner would issue to acquire CBS. Turner has said that those charges would amount to between $735 million and $2.4 billion a year.

News Competition

CBS also raised antitrust objections to the merger, arguing that it would reduce competition in broadcast news, among other points. Turner’s Cable News Network and CBS News are two of only four network news organizations in the country, CBS said.

CBS made clear, however, that for the time being it will avoid the standard arsenal of defensive weapons in takeover fights. The company said it has no current plans to negotiate a merger with another company--known as seeking a “white knight” in the jargon of corporate takeovers--or to buy back a portion of its stock, borrow a huge sum to make an acquisition and thereby alter its balance sheet or undertake a financial restructuring of the company.

Those steps are generally considered last resorts by companies threatened by “unfriendly” takeovers because they can sap the companies’ own fiscal strength.

‘No Surprise’

In a statement issued from the Atlanta headquarters of Turner Broadcasting System, Turner said CBS’ reaction “comes as no surprise, particularly in view of past statements attributed to CBS management as to how it would respond to an unsolicited proposal.”

There were these other developments Monday in the Turner-CBS fray:

--New York stock speculator Ivan F. Boesky, who disclosed on April 1 that he owned 8.7% of CBS, said that he has sold half those shares. Most of the sales were made on Thursday and Friday, after Turner announced his bid. The timing led CBS executives to suggest that Boesky’s move was a vote of no confidence in Turner’s offer, but Boesky issued a statement emphasizing that he “continues to be a major holder of CBS stock and that Ted Turner’s offer should not be underestimated.”

Boesky still owns 4.3% of CBS, making him the network’s third-largest shareholder.

Profit of $16.5 Million

In an SEC filing Monday, Boesky said he sold his shares at an average price of $108.04, giving him an indicated profit of $16.5 million before commissions and finance charges. Of the total, 284,200 shares were sold April 8 and 9, the two days before CBS accused him in a lawsuit of violating securities and financing laws in accumulating his holdings. The rest were sold Thursday and Friday.

--The Federal Communications Commission opened its customary 30-day period for public comment on Turner’s bid. During that period, the bidder may not acquire stock in the target; after the comments are in, Turner has 10 days to respond. CBS said Monday that it will formally oppose the bid before the FCC.

--Senate Budget Committee Chairman Pete V. Domenici (R-N.M.) said he would propose today a moratorium on hostile corporate takeovers financed by “junk bonds” such as those Turner proposes issuing. Such financing, which tends to load down acquired companies with the low-rated, extremely costly debt floated to acquire them, have been accumulating controversy for a year. An aide to Domenici told the Associated Press that the moratorium proposal predated Turner’s bid and if enacted might block it.

Valued at $175 a Share

The Atlanta cable television entrepreneur is offering for each share of CBS stock a package of low-rated, high-interest bonds and preferred and common stock that he valued at $175 per share. The bid includes no cash and is conditioned on his buying at least 67% of CBS’ shares, approval by the FCC and the elimination of a bylaw preventing anyone but the board from calling a special meeting of shareholders.

Wall Street investment analysts valued the package in a range of $120 to $165 per share. Many argued that CBS’ defense would be so vigorous, and Turner’s plan is so devoid of capital, that its chance of success is virtually nil.

CBS’ defense was crafted in part by Morgan Stanley & Co., which will receive an initial $1.5-million fee for its services and an additional $3 million if Turner’s bid is withdrawn or if he fails to get 20% of CBS’ shares or a change in control of the CBS board.

‘Severe Gyrations’

In its lawsuit, the network contended that Turner selectively disclosed in advance to stock market speculators his plans to make an offer. Their purchases then contributed to “severe gyrations” in the price of CBS stock.

Among those who benefited from Turner’s untimely leaks, CBS charged, are “supporters” of Fairness in Media, the right-wing group waging a campaign to correct what it contends is the “liberal bias” of CBS News by placing the network’s shares in the hands of conservatives.

The network also contended that Turner overstated the net income of Turner Broadcasting System, his flagship company, by more than $8 million in 1983 and 1984 by overstating assets and understating liabilities. While Turner claims in SEC documents to have earned profits of $7 million in 1983 and $10.1 million in 1984, CBS contended that the correct figures would be a loss of $1.6 million in 1983 and a profit of $1.8 million last year.