Amid Takeover Battles, CBS May Have Lost War to Tisch

After a year and a half of threats from outsiders such as broadcaster Ted Turner and Sen. Jesse Helms (R-N.C.), the conflict at CBS Inc. has moved indoors.

The network has seemed to be edging toward board room warfare since investor Laurence A. Tisch, the largest CBS shareholder, told other board members last month that he wouldn’t promise to limit his holdings to their current 24.9% of the shares outstanding. The refusal prompted other directors to consider what defensive tactics they might take if Tisch continues to accumulate stock without making a tender offer for the company.

But while some are still trying to calculate the odds in such an engagement, many other knowledgeable observers--inside and outside the company--believe control of CBS is already firmly in the hands of the Tisch family interests, which also controls Loews Corp. They say that unless some powerful new bidder appears, CBS may be entering an era in which Tisch decides such pressing questions as who will manage the television network at a time of slumping earnings and ratings.

‘Admit It’s Over’

“The situation over there is like a chess game where one player has taken a bunch of big pieces,” said one investment banker, who asked to remain unidentified. “The opponent can fight on and waste a lot of time and effort, or he can be smart and admit it’s over.”

Says Roswell L. Gilpatric, a CBS board member and retired presiding partner of the Cravath, Swaine & Moore law firm: “I personally don’t know of anything other board members could do to hold off further stock purchases, if that’s what Mr. Tisch wants.”

Tisch’s intentions have been a subject of speculation since he began accumulating stock in July, 1985, with the encouragement of Chairman and Chief Executive Thomas H. Wyman and CBS founder William S. Paley. The two were looking for a major “friendly” stockholder to help preserve CBS’ independence in a year when CBS confronted not only Turner and Helms but also New York investor Ivan Boesky and Denver businessman Marvin Davis.

Make Network an Inheritance

While Tisch said in one interview that control of the network was an inheritance he would like to pass on to his sons, on other occasions--including discussions with other board members--he has pointedly declined to be more specific. Tisch did not return several telephone calls last week.

“It would be nice to know exactly what he has in mind, but we don’t,” said director Gilpatric, who was interviewed from Switzerland.

Wyman says that Tisch has lived up to his original pledge to maintain his stake at 25% and that he is not concerned about his presence.

“We would, of course, be concerned if Loews indicated plans to purchase more than 25%, but it has agreed not to,” Wyman said last week, in response to a written question.

But Tisch’s presence has unsettled many at CBS who may fear that he might wish to accelerate the cost-cutting drive that has already led to many layoffs and battered morale, or even sell off major network assets.

“Many among the employees and management, who have already seen Turner and Davis and others approach CBS’ independence, are naturally concerned that there might be another threat to the company’s independence,” Gilpatric said.

Thus, many insiders were cheered to hear that some on the board might challenge Tisch’s plans to increase his stake. One senior executive said the other outside directors “threw down the gauntlet” at the July 8 board meeting and predicted that if the confrontation develops “it’ll be knock-down, drag-out.”

Others wonder how much leverage other board members would have in a battle. Some have suggested that they might try a so-called poison-pill defense, in which they would seek to make a takeover prohibitively expensive by requiring any would-be purchaser to buy an additional block.

But adding such a poison pill would require a favorable vote from the shareholders, says Barry Kaplan, analyst with the Goldman, Sachs investment firm in New York, and with Tisch’s 25% stake, “the proposal would probably lose.”

Controlled With Less

Observers note that many companies are controlled by shareholders with stakes no larger than the one held by the Tisch interests. One such company is Loews Corp. itself, the New York-based tobacco, hotel and insurance concern in which the Tisches hold a 24% stake, Gilpatric noted.

The Bass brothers, the wealthy Texas investors, forced out Walt Disney Productions’ management in 1984 with less than 25% interest in the company.

And if the Tisch stake isn’t already irresistible, many believe that Tisch still has an ally in founder Paley, the second-largest CBS shareholder with a 7.6% stake.

Thus, if board members or Wyman become unhappy with Tisch, their best strategy might be to enlist another investor to buy out Tisch’s shares at a premium or to make a tender offer for the network.

Rumors that some on the board are interested in drawing a “white knight” into the fray continue to circulate.

Last Thursday, CBS stock spurted $6 to $143 a share in heavy trading on rumors that the board was holding a special meeting. Thought to be the object of such overtures were John Kluge, who built and then last year sold the Metromedia broadcast empire, and Westinghouse Electric.

CBS said that no such meeting was planned and that it could not account for the stock’s rise.

Although many have expressed an interest in the network, it might prove difficult for board members to find an ally who could afford such a takeover move and who would also be committed to preserving CBS in its current form. Others might be less committed to what board members view as CBS’ important traditions and principles; like Turner, they might be satisfied to shrink operations and sell off what have been core businesses.

‘Grey’ Knights

“There aren’t so many white knights out there,” said a board member who asked to remain unidentified. “There seem to be a lot more gray ones.”

Some predict that even directors who are now resisting a further stock accumulation by Tisch will come to recognize his leadership.

Control by the major shareholder would raise immediate questions about Wyman, who has been rumored to have already had a falling out with Tisch and to be in peril of losing his job.

In fact, rumors escalated Friday that Wyman had resigned, but such talk was not substantiated and Wyman was said to be out of town and unavailable for comment.

Last week, Warner Bros. Chairman Robert Daly, a 25-year CBS employee, denied reports that he had been approached by Tisch about taking the network’s chief executive job.

A spokesman for Daly said the executive is “very happy with his current job,” and wasn’t approached by the Tisches.

Wyman, 55, continues to draw mixed notices. The executive, who declines interviews on his personal life or career, is faulted by some subordinates for also being remote and unwilling to get involved in the details of operations.

“If you waited for him to return your calls, you wouldn’t get too much done,” one former CBS executive said.

Born in St. Louis and schooled at Amherst College where he wrote a thesis on Yeats’ early poetry, Wyman crossed to CBS in 1980 from the alien world of manufacturing. He held a senior position at Polaroid, was chief executive of Green Giant and vice chairman of Pillsbury.

While he was brought to CBS as a skilled manager who would impose cost controls, some were immediately skeptical because of his inexperience in the entertainment business. When he succeeded Paley in 1983, he failed to name a president from an entertainment background as some expected; critics complained that he was trying to protect himself from too strong a rival.

Wyman backed the company’s money-losing venture into the manufacture of video games and its purchase of Ideal Toy Corp., which CBS sold off last year after heavy losses. Some have said that his cost-cutting efforts should have come earlier and that CBS didn’t need to buy back 21% of its stock and take on another $1 billion in debt to fight off Ted Turner.

Support on Wall Street

During his adminstration, CBS has struggled with a variety of other problems that have gained wide attention. The entertainment division has slipped to second place in the ratings, the long dominance of its evening news broadcast has been challenged, and the woes of its low-rated morning news program have been publicized with embarrassing regularity.

Still, Wyman has a share of supporters on Wall Street.

Edward Atorino, analyst with the Smith Barney, Harris Upham brokerage, contends that much of the griping about Wyman has arisen because of the cuts in staffing and expenses at CBS News.

“He’s getting hell for doing what (Cap Cities-ABC Chairman) Tom Murphy’s been praised for,” Atorino says. “It’s because CBS News is such a sacred cow.”

Supporters note that the past year’s sales of CBS’ unprofitable units have already reduced long-term debt at the company to $790 million from its peak of $1.45 billion last September, just after the stock buyback.

They note that CBS will be helped this year by better results from the publishing division and the record business, which some analysts expect to post a 40% gain in operating profits.

And if CBS’ short-term earnings outlook is lackluster, Wyman’s fans say the network’s biggest problem, the general slowdown in broadcast revenue growth, can’t be blamed on him.

Tisch’s view on these arguments isn’t fully known. While some expect Wyman to be cleaning out his desk at any moment, others contend that Tisch will reserve judgment on the chairman for several fiscal quarters as he learns more about the business and watches for operating improvement.

Tisch won’t be shy if does decide a change is necessary. “He’s a good man to have on the board; he expects performance,” board member Gilpatric said.