Time Warner Caps Steve Ross’ Big Comeback : With Huge Media Merger, He Lives Up to Image as Financial Genius, Dreamer

It is, in the understatement of one analyst, a “career capper.”

With the weekend announcement that Time Inc. and Warner Communications will merge, 61-year-old Warner Communications Chairman Steven J. Ross is set to become co-chief executive of the largest media company in the world, alongside Time Chairman J. Richard Munro.

While Munro has indicated that he will retire within two years, Ross--under terms spelled out in the merger agreement--enjoys the chairman’s title for fully 10 years.

The new company, to be called Time Warner, will boast such coveted assets as Warner Bros. studio, three recorded music companies, the nation’s second largest cable television company, Time’s magazine publishing empire and Home Box Office.

With this deal, Ross delivers to Warner shareholders nearly 60% of a new company that could change the ground rules for entertainment, broadcasting and publishing. Time Warner will have a market value of $15 billion, at current stock prices. Counting the amount of debt held by the two firms, the deal is valued by the companies themselves at $18 billion--making it one of the largest corporate transactions ever in the United States.

To many business associates and friends, it is Ross’ greatest coup--all the sweeter because it comes less than a decade after Warner suffered through disastrous losses and a bribery-kickback scandal in its executive ranks. In three years, Warner has made a triumphant recovery--doubling revenues to $4.2 billion and profits to $423 million.

Quite an achievement for Ross, a product of Brooklyn and a junior college in upstate New York who got his start working for his father-in-law in a chain of funeral parlors. Even those who once harshly criticized Warner Communications--for dangerously loose management that failed to anticipate a bust in the video game business in late 1982--now feel that Ross deserves to preside over a company as powerful and prestigious as Time Warner will surely be.

Still, Ross demurred from calling the merger the crowning achievement of his career. “I hope what we’re going to do next year will be the crowning achievement,” the Warner chairman said Saturday when the merger was announced.

Young Entrepreneur

From an unlikely start in the funeral parlor business, Ross’ 30-year career has been studded with success, beginning with his idea of launching a car-rental business with the limousines that were idled at night. The car-rental business took off, and in 1961, Ross merged it with Kinney System, New York’s largest parking lot concern, and an office cleaning firm run by his brothers-in-law.

But Ross tired of these businesses, according to one biographer, because they lacked “charisma.” In 1968 and 1969, he acquired a publisher of comic books and Mad Magazine; a talent agency and Warner Bros.--Seven Arts, the owner of two record labels and a money-losing movie studio. Over the next two years, Ross added the Elektra and Asylum record companies and three cable TV firms, and began divesting most of Kinney’s original businesses. The company was renamed Warner Communications in 1972.

By 1982, Warner was the toast of Wall Street, thanks largely to the stunning revenues of its Atari video game unit, which generated $2 billion in sales at its peak. But a sudden reversal in the marketplace late that year caught Atari and Warner executives off guard. Before the debacle ended with the sale of Atari in mid-1984, the cumulative losses were put at $875 million.

During the same period, Ross had to live down a federal prosecutor’s contention that the Warner chairman was “the real culprit” in the entertainment company’s dealings with the Westchester Premier Theater that led to convictions of two Warner executives in connection with a bribery-kickback scheme. Earlier, federal prosecutors had convicted several organized crime figures of skimming profits of the live-performance theater in Tarrytown, N.Y.

Won Respect

Ross “was never indicted for anything and there was no evidence that he should have been,” said Jac E. Holzman, who sold his Electra record company to Warner in 1970 and continues to serve as Warner’s chief technologist. Despite the embarrassment of the headlines, Holzman said Sunday, “I don’t think that was as painful for him as Atari.”

In December 1982, Warner shocked Wall Street by announcing that it might make $100 million less in pretax profits than analysts had expected, due to canceled orders for its Atari video games. But Ross handled the debacle in a manner that won the respect first of his executives, and eventually, the investing public.

“He flew every key executive into New York and . . . faced us,” Holzman recalled. “I think it took a lot of guts.”

Gordon Crawford, senior vice president of Capital Research, the Los Angeles money management firm whose clients hold more than 8% of Warner stock, said: “I think in the post-Atari era, the guy’s done everything right.”

Crawford and others cite Ross’ sale of subsidiaries such as Franklin Mint, Showtime/the Movie Channel and Atari for good prices, and his strategy of retaining a stake in the properties that were sold.

When Warner’s financial health was restored, Ross proved that he had not lost his nerve or instinct for acquisitions, with the timely purchase of a giant music publishing concern before prices for similar companies soared.

“He has a real strong vision of where the entertainment business is going and . . . he is one of the great talents for making deals happen,” said Crawford, whose company also holds about 8% of Time Inc.

“Usually financial wizards and dreamers are not packaged together. Steve is both,” said New York attorney Arthur Liman, a friend and legal adviser. “Steve is a person who dreams of how to create new markets for his businesses; he’s a person who dreams things that seem unattainable and then applies his enormous financial abilities to try to make them happen. But he also has a quality that I’ve never seen, and that is his skill with human beings. Steve genuinely likes the talent who work for the company.”

People Skills Praised

Ross “calls people and encourages them and boosts their morale when they’ve had failures,” Liman continued. As a result, Ross has won the loyalty of Hollywood stars and Warner studio executives alike. They “tend to be like cats who will never leave home,” Liman said.

In the boardroom, Ross apparently exhibits similar skills. Hugh Culverhouse, the Tampa Bay Buccaneers football team owner who joined the Warner board in 1986 as a nominee of dissident shareholder Chris-Craft Industries, on Sunday called Ross “one of the most astute deal makers” who has “the ability to see into the future” yet who will also “subordinate his position to others.”

When Warner’s 13 directors voted on the merger last Friday, Culverhouse was among the 12 who voted in favor, while his original sponsor, Chris-Craft Chairman Herbert J. Siegel, abstained.

Although Chris-Craft will become one of Time Warner’s largest shareholders with a 14% stake of voting shares, Siegel is not expected to be invited to join the board--thus ending a painful chapter for Ross, who welcomed Siegel as a white knight in late 1983 when Warner faced a takeover threat from media magnate Rupert Murdoch.

Siegel, critical of Warner’s lavish style, quickly became a thorn in Ross’ side while the Warner chairman struggled with the Atari-generated losses. Their most unpleasant spats included a Siegel lawsuit in 1987 to obtain a sealed, 663-page report on an internal investigation of the company’s dealings in the 1970s with Westchester Theater. In 1987, a Siegel lawsuit delayed Warner’s purchase of Lorimar Telepictures, one of the nation’s leading television programmers, until early this year.

Siegel has been unavailable for comment.

With his problems behind him, Ross is expected to bring to Time Warner an entrepreneurial spirit that many believe has been in short supply at Time Inc. and a vision for the direction of the entertainment and media industries. Ross and Time’s Munro have said they share an ambition of creating a powerful American media conglomerate that can hold its own against increasingly large and formidable international competitors such as West Germany’s Bertelsmann A.G. and Rupert Murdoch’s News Corp.

“He’s one of a kind,” said Liman. “In a world that is filled with people with MBAs, here you have this graduate of Paul Smiths College . . . dreaming of markets in Europe and what technology is going to do.”