CBS Inc.'s announcement that it will spend $2 billion to buy back 44% of its shares means that the company’s largest stockholder, Chairman Laurence A. Tisch, is cashing out most of his investment in the broadcast firm--reportedly because he is gloomy about the outlook for the economy.
Gloom notwithstanding, Tisch, 67, and his family-controlled Loews Corp. will make a sizable profit on the shares they tender to CBS’ buyback offer. And Tisch will still retain his management position and control of a 25% stake in the television company.
So, it’s a good deal for Tisch, who took the helm at CBS in 1986. He is recouping most of his investment in the company with proceeds from the sale of its own assets. The $2 billion that CBS will use to buy back its shares represents most of the proceeds from selling CBS Records in 1988 for $2 billion and CBS Magazines in 1987 for $650 million.
Tisch is not being unfair to other shareholders in doing that. The offer of $190 a share announced on Wednesday--a 12% premium over the market price--is being made to all CBS shareholders.
But the buyback deal, as well as Tisch’s four-year stewardship of CBS, have been unfair in the larger sense to the promise of a once-admired company and to employees who have lost jobs through layoffs or lost opportunities because of Tisch’s narrowness of vision.
He took a slipping business and sank it. CBS had lost its network ratings leadership when Tisch was encouraged to come in with a major investment in 1985--$744 million for nearly 25% of the company--as a counter to a possible takeover threat by Ted Turner.
The following year, Tisch became chief executive and the network slid to third place, where it remains. His aggressive cost-cutting programs and layoffs have served more to depress morale than to lift earnings.
Always, he has lacked vision for the business. He sold CBS Records at a bargain price to Sony because he failed to see the possibilities in worldwide music distribution.
Well known as a cautious investor, Tisch in recent years has invested CBS’ cash in short-term Treasury securities. That has brought in a good portion of the company’s income but held it back from the kind of investments that competitors ABC and NBC have made in cable television and other entertainment developments.
And the stock buyback announced Wednesday is a final admission by Tisch and the CBS board of directors that they cannot find investment opportunities for the company’s cash, even in a lively and changing entertainment industry.
The ultimate outcome for CBS, many analysts say, is that it will be sold sometime next year to another entertainment company. Tisch said Wednesday that the company is not for sale, but he has sold assets before and thought of selling out before, too.
Tisch’s management has come in for heavy criticism from some owners of the network’s 212 affiliated stations. That criticism, plus his gloomy outlook about the business, reportedly caused Tisch to contemplate selling CBS to Walt Disney Co. earlier this year. Entertainment industry sources say that preliminary merger talks took place but that Tisch wanted too high a price--$300 a share.
However, a sale of CBS is more probable after the stock buyback is completed, analysts say. The price may be decidedly lower, says analyst Richard MacDonald of the media investment group MacDonald Grippo Riely. The company will be less valuable, having disbursed $2 billion in cash. Furthermore, its earnings outlook is poor, and in recent years “the value of the CBS brand name has eroded,” MacDonald says.
But if that is so, why would Disney or anybody want to buy CBS? Because in the hands of competent management, CBS is a jewel. It is one of the three major U.S. networks, a premier distribution system for entertainment, news and information.
In fact, even today, the network business isn’t as bad as CBS’ troubles make it appear; ABC’s earnings are rising this year. The simple fact may be that Tisch is gloomy about CBS because he can’t hack it in the business.
Still, operating failure needn’t mean financial failure if you’re as smart as Larry Tisch. The buyback announced Wednesday will bring Loews Corp. a profit of roughly $160 million on the CBS shares it tenders--roughly a 61% return over five years, counting the CBS dividends it has received.
And Loews--a tobacco, insurance and hotel company in which the Tisch family owns 26%--will retain 3.2 million CBS shares at a net cost of $160 million--or an average $50 a share. If CBS is sold next year at more than $100 a share, Tisch could double or triple his money.
Then the only losers in Tisch’s sojourn at CBS would be employees: those who lost opportunities and those who lost jobs. Unlike Tisch, they have reason to be gloomy.