Tisch Makes Most of His Piece of the Action at CBS

NEW YORK — When CBS was beset last year by two uninvited Southerners, Sen. Jesse Helms (R-N.C.) and Atlanta broadcaster Ted Turner, each intent on taking control, CBS Chairman Thomas H. Wyman decided to visit the Loews Corp. headquarters on the same Manhattan block.

The CBS chairman sought advice about public interest groups that might help his company fight Turner, as Loews Chairman Laurence A. Tisch recalls.

However unsuspectingly, Wyman opened the door to an involvement by Loews that has no end in sight. For although CBS turned down Loews’ eventual offer to acquire the company on friendly terms, Loews began buying the broadcasting company’s stock in July and today controls 16.7%, as well as a director’s seat.

This accomplishment, with no public resistance from CBS management, makes an extraordinary tale in view of CBS’ avowed desire to remain independent, and the lengths to which the company went to rebuff Helms, Turner and New York investor Ivan Boesky.

Loews’ entrenchment is a testament to Larry Tisch’s business skills and personal diplomacy, but also a reflection of the corporate fatigue at CBS after a year of takeover battles and, more recently, its loss to NBC as top-rated network for the prime-time season just ended.

Unless CBS regains its first-place standing in the next year or two, some industry sources wager that Wyman’s administration will be replaced by one of Tisch’s choosing.

Tisch, in one of the first interviews he has granted since joining the CBS board five months ago, endorses the current management and vigorously defends CBS’ conduct in the recorded music industry, where allegations of payola have surfaced. He also denies published reports that he wants CBS to sell the record unit.

But the Loews chairman skirts discussion of the degree of control Loews will exercise if it acquires 25% of CBS stock, as he has vowed to do. “I wish I knew the definition of control,” Tisch says. “ . . .We intend to buy up to 25%, and what you want to call it is your problem.”

He is quite clear about his long-term ambitions, however. The 63-year-old chairman says he hopes the CBS investment will be passed as a legacy to his children. “I think it’s a wonderful company and a very interesting business that should be important to them,” says Tisch, who with his younger brother, Preston R. (Bob) Tisch, controls 24% of Loews’ stock.

The two men have seven grown children, including three sons who work for the tobacco, insurance, hotel and wristwatch conglomerate.

“From the first day I went on the (CBS) board . . I committed myself, not in words but to myself,” Tisch said. “This was an investment we were going to keep, and it’s not for sale.”

Most-Powerful Director

Already, Tisch is widely regarded as CBS’ most powerful director. On his own initiative, he has interviewed key CBS employees and suppliers on both coasts.

As a member of CBS’ audit committee, he asked to review the company’s pension fund management, prompting the fund to sell nearly $300 million of its stock portfolio during the recent stock market rally because Tisch believes that the stock market “is getting ahead of itself.”

“Larry Tisch is getting to know the bowels of the business,” one longtime CBS executive says.

Adds a high-level Hollywood executive, after meeting Tisch recently: “No question that he’s the boss.”

Tisch acknowledges that he was visited last month by an investment banker representing Denver oilman Marvin Davis, on the same day the banker conveyed to CBS management Davis’ offer to buy the company for $160 a share.

“We were not interested in his offer. Management had no interest in his offer,” Tisch says.

The following week, Loews agreed to pay $143.5 million, or $143.50 per share, for a 4.3% block of CBS stock held by Fisher Bros. Financial & Development Co.

The price tag raised eyebrows on Wall Street, because Loews previously paid prices ranging from $104.50 to $120 for its CBS shares. One investment banker says Tisch appears to be in a hurry to consolidate his position before any other major investor materializes.

But Tisch contends that he bought the stock to quell takeover rumors. “I just didn’t think that was healthy,” he says. “It had nothing to do with my position, really. I thought it was the right thing to do.”

So far, Loews has invested nearly $581 million for its 16.7% stake in CBS. Loews has raised $900 million in four different offerings of notes and debentures since December, but Tisch says the company borrowings were timed to take advantage of low interest rates, rather than to bankroll the CBS stock purchases. “We had the money (for CBS) anyway,” the Loews chairman says.

Profitable Operation

Loews reported net income of $589 million on revenue of $4.9 billion in 1985. Its 80%-owned insurance company, Chicago-based CNA Financial, generated net income of nearly $272 million, more than double the previous year, while the Lorillard tobacco unit increased 13% for a net income of $137 million in 1985.

By contrast, CBS reported income from continuing operations of $203 million on revenue of $4.8 billion. The company’s net income was a scant $27 million, due largely to losses of $175 million from discontinued operations and the hefty expense of money borrowed last year when CBS paid nearly $1 billion to repurchase 21% of its stock in a move that thwarted Turner’s takeover bid.

These lofty sums are far removed from the Tisch family fortune in 1946, when Larry quit Harvard Law School to join his brother Bob and father, Al, in the purchase of Laurel-in-the-Pines, a New Jersey resort hotel.

Al Tisch raised $45,000 from the sale of his boys’ clothing manufacturing business and $80,000 from the sale of two children’s camps in the Poconos, borrowing an additional $50,000 from a friend (“I forget who it was,” Larry Tisch says).

In 1950, the Tisches acquired an Atlantic City hotel and began building a chain of select resorts, including the Americana in Bal Harbour, near Miami.

The Tisches are credited with attracting the AFL-CIO winter executive council meetings to the Bal Harbour hotel, beginning in 1958. Larry Tisch says he was living in south Florida, overseeing the Americana while his brother supervised the Atlantic City holdings, when he decided to invest in Loew’s Theatres Inc. in 1959, attracted in part by the chain’s undervalued real estate beneath its movie palaces.

After years of antitrust litigation, the venerable Loew’s Inc. had consented to divide its motion picture empire into two separate companies. In March, 1959, Loew’s Theatres was spun off with 111 theaters in the United States and Canada, as well as New York radio station WMGM.

(Loew’s Inc. retained the Metro-Goldwyn-Mayer motion picture and TV production and distribution business, and changed its name to Metro-Goldwyn-Mayer the following year.)

Became Largest Holder

Within six months of the spinoff, Larry Tisch owned a 15% stake, becoming Loew’s Theatres’ largest shareholder and gaining a director’s seat. He joined the finance committee, in some ways foreshadowing the events at CBS a quarter-century later.

After Tisch’s investment, the theater chain moved quickly to realize some of its real estate values. In April, 1960, it demolished the 46-year-old Lexington Theatre in New York to build a hotel. A month later, it awarded a 99-year lease for its 72nd Street Theatre property, agreeing to raze that motion picture palace for an apartment building.

That same year, Al Tisch died at age 63. The Tisch Hotels were merged into Loew’s, with Bob presiding over the new hotel subsidiary and Larry Tisch elected Loew’s Theatres chairman and chief executive in September, 1960.

The Tisch brothers eventually raised their stake to 44% and changed the company’s name to Loews Corp. to embrace the non-theater acquisitions.

In November, 1968, Lorillard was acquired. The cigarette manufacturer of Kent, Newport, True and Old Gold brands has proved a “fantastic money maker,” according to Sumner Redstone, a New England motion picture exhibitor who, like Larry Tisch, has a reputation for shrewd investments and has been a longtime Loews shareholder, currently controlling about 3 million of Loews’ 81.5 million shares.

But Loews’ best investment was CNA Financial, acquired in late 1974 after a protracted scrap with management. At the time, a Wall Street executive predicted that Loews would have to “work like hell” to turn the company around, but by all accounts, it did.

Loews boasts that CNA maintained sound reserves during a six-year period of cut-rate pricing in the industry and is now reaping its reward. In the most recent 12-month data available for the insurance industry, CNA moved from 18th to 15th place in terms of premium volume, and it anticipates another gain this year.

Despite the lack of synergy in its operations, Loews has a lean corporate staff with few changing faces and “a very collegial atmosphere,” to use Larry Tisch’s phrase.

For example, Bernard Myerson, recruited in 1962 to run Loews’ theater division, still works from his old Loews office despite the fact that he and other investors, including Los Angeles businessman Jerry Perenchio, bought the theater unit last July for $158 million.

Loews sold the unit because “it was an opportunity for (Myerson) to get a piece of the company, so it was a good deal for him, and it was a good deal for us, and it wasn’t that important a part of our earnings,” Tisch says. The unit was not sold for under-performance, he insists, and indeed, Loews theaters “do a bigger gross (per seat) than any other circuit,” according to Myerson.

The theater division sale resulted in an after-tax gain of about $81 million for Loews. Despite the disappearance of its last link to motion picture history, Tisch says the corporation won’t change its name.

Loews has also sold some of its hotels, including the Americana, but it still operates 14, including the Regency in New York, L’Enfant Plaza in Washington and Harbour Cove on Paradise Island in Nassau, the Bahamas.

Net Income Decreased

Net income for the hotel operations decreased 12% to $11 million last year, and Tisch says increased competition has diminished the profitability his family enjoyed in their early hotel days.

Some Tisch friends say his worst investment was Bulova Watch Co., acquired in 1979 for $38 million.

“They’re wrong.” Tisch says. “I mean, it’s not good, compared to the others. But we sold a building this year (for $25 million) . . . and we got $25 million back on the excess of the pension fund, and the company’s making money.” Bulova posted a net income of $16 million last year, showing a fourfold improvement over the previous year.

About the worst criticism leveled at Tisch these days is for his pessimist view of the stock market. “I missed a lot of this market,” Tisch concedes, but he argues that Loews did handsomely in bonds.

“People forget that in 1985, the stock market was up 31% and the bond market was up 31%,” he says. Loews’ investment portfolio generated a net income of nearly $68 million last year, up 45% from 1984.

Tisch admits to some business conservatism. He says Loews was wrong not to expand its theater chain aggressively in the 1960s, when General Cinema and others grew rapidly by leasing space at regional shopping malls. “We didn’t want to pay what we thought were high rents at that time,” he says.

And he readily admits to selling some individual stocks too early, such as American Broadcasting Cos. Loews acquired more than 6% of ABC in 1981, when prices were still in the 20s, but it began selling when prices hit the mid-30s. ABC shares closed at $74.50 on the evening prior to its announcement last year that it would merge with Capital Cities Communications; the news rocketed the price as high as $115.

Tisch denies that he ever offered to buy ABC but says that ABC Chairman Leonard Goldenson “always knew, I’m sure, that if he ever was in trouble and he needed somebody to go to, we were friendly.”

The Loews chairman also dismisses speculation that his interest in CBS was initially prompted by fears that Fairness In Media, the convervative group led by Jesse Helms, might carry out its threat to force changes in CBS’ news coverage.

“I don’t want to have such lofty motives attributed to me,” he says.

As a strict business proposition, CBS continues to titillate other investors. If takeover speculation subsides, some analysts have predicted that its stock price should drop to $105. Yet they’ve also estimated the company’s break-up value at $200 or more per share. With CBS closing at $134.50 on Friday, one analyst says, “I don’t think the speculation has been squeezed out. People still expect something to happen.”

Loews’ willingness to pay $143.50 per share for its most recent CBS stock purchases made some onlookers ask whether Tisch is betting on its earnings potential, or its asset base.

Tisch said, “I think you have to basically look at CBS from an earnings standpoint, because we certainly have no interest whatsoever in dismembering the company.”

Employees Encouraged

That must be welcome news to the CBS employees who read published reports last week that Tisch wants to sell the CBS Records Group.

“There wasn’t an iota of truth to that whole story,” Tisch said. “ . . .I would think the record company’s an integral part of the business.”

The record industry has been rocked in recent months by news reports of federal probes into possible ties between independent record promoters and organized crime.

CBS responded last month by announcing it would “curtail substantially” its use of such outside promoters, who work on contract to help get air play for records.

But if there was wrongdoing, Tisch insists that it did not occur at CBS. “CBS was never, in any shape, manner or form involved in kickbacks or anything that illegal. Never,” he declares, dropping his hand on his desk for emphasis. “Because everything that was done was done with the full compliance and understanding of the legal staff at CBS.”

Tisch adds his own vote of confidence in CBS’ record group president. “One thing you can say for Walter Yetnikoff. They don’t come any straighter, or more honorable. And he, under any circumstances, would never be involved with anything that wasn’t right.”

The record group reported a decline in 1985 earnings from the previous year, but historically has alternated with Warner Communications for the leading position in the industry. In the first quarter, the record unit reported income of about $52 million, more than double the first quarter of last year.

A number of CBS executives contacted refused to comment, even privately, on Tisch’s impact on the company. Wyman also “apologetically declined,” a spokeswoman said, “feeling it inappropriate for him to be involved” in a profile of Tisch.

Some former CBS executives say their old colleagues are simply scared of offending either Wyman or Tisch, and are apprehensive of change at the 59-year-old company.

Provide Some Class

But one corporate officer seems warmed by the prospect of the Tisch brothers’ involvement, saying they might provide “some class and style for the company.”

Judging from those current and former CBS employees who were interviewed, Wyman has failed to build an enthusiastic following since he joined CBS six years ago from Pillsbury Corp.

He is faulted most frequently for aloofness and an alleged inability to understand the creative people who populate the news, entertainment, publishing and recorded music businesses. Some also fault Wyman for failing to name a chief operating officer who might act as a liason with the divisions.

When asked about such criticisms, and the need for a chief operating officer, Tisch responds, “I don’t know. It’s not easy. Theoretically, the head of broadcasting should have those skills. . . . But (dealing with creative people) is such a rare talent that it’s hard to fault someone for not having it. On the other hand, you should create the atmosphere where the creative people can do their best work.”

When asked if management has created such an environment, he says, “I don’t know. . . . You have to look at the results.”

Over what period of time?

“A few years,” Tisch says.