COMPANY TOWN : CBS and QVC Confirm Their Intention to Merge : Television: Family ties drove the $3-billion alliance between Laurence A. Tisch and Barry Diller.

By JOHN LIPPMAN

July 1, 1994 12 AM PT

TIMES STAFF WRITER

In the beginning and the end, it came down to Danny Tisch.

The second of CBS Inc. Chief Executive Laurence A. Tisch’s four sons was the one who convinced his father to buy CBS shares in 1985 as part of an arbitrage play. And eight years later it was Danny who convinced his father that it was time to largely cash out--after ace programmer Jeff Sagansky quit and the network lost the NFL and eight key affiliates to Fox.

That advice led directly to the merger discussions with home shopping pioneer QVC Inc. In confirming their plans Thursday, Tisch and QVC Chairman Barry Diller said they hope to take the tentative $3-billion agreement to their boards for approval by July 13.

CBS-QVC would create a new kind of TV giant combining the vast reach of a major network with the technological know-how of a scrappy cable competitor. It would also give Diller, one of the industry’s savviest executives, a powerful new platform, and Tisch a lucrative exit from daily management of the business. His payout has been estimated at more than $500 million.

While many on Wall Street, including Tisch, are treating the merger as a fait accompli, Diller was more cautious in discussions with CBS executives Thursday. He and his advisers consider the list of prospective rivals “remarkably short,” but one name that has them worried is that of billionaire Marvin Davis, who has also been interested in acquiring NBC. Knowledgeable sources say Tisch scowled and muttered, “I will never sell my stock to him,” when Davis’ name came up at a luncheon meeting Thursday.

Tisch’s eagerness to sell to Diller may reflect his own restlessness as much as the quality of the deal. Wall Street responded to the news Thursday by driving CBS’ price up $50 a share to $313 on the New York Stock Exchange. QVC rose $5.625 to $38 on Nasdaq.

In the weeks following Fox’s raid on eight key CBS affiliates in May, Tisch had tired of the grind of the business, people close to him say. After huddling with Danny and other family members for advice last month, the 71-year-old billionaire is said to have put the word out to investment bankers: “If you got a good offer, I’m yours.”

Waiting eagerly in the wings was Diller, who had just lost a brutal, $10-billion takeover battle for Paramount Communications Inc. to Viacom Inc. Sources say Diller formally approached Tisch five weeks ago. While the two temperamental executives had never been close, there was a connection. Diller is a good friend of Tisch’s nephew Steve, a veteran Hollywood producer with movies such as “Risky Business” and the upcoming “Forrest Gump” to his credit.

On Thursday, Diller was already telling CBS executives that his vision of the company was radically different from Tisch’s. Although the two jointly appeared at Howard Stringer’s executive lunch in the CBS boardroom, Diller’s comments were a stark repudiation of the Tisch era, emphasizing the need to grow the company and push it aggressively into cable.

“To compete in today’s marketplace, it is a virtual necessity to vertically integrate,” Diller declared. He conceded that much of the talk about the so-called information superhighway is premature. Then, almost sounding like Tisch, he said that “it’s not about hardware and technology, it’s about programming and product.”

Sources say Diller nearly lost his shot at CBS in the early going. Tisch, who had turned his back on offers before, did the same with Diller initially on grounds that he didn’t like the structure. But a few weeks later, after Diller had recrafted the deal as a merger among equals rather than a cash buyout, Tisch flashed his interest.

CBS plans to acquire QVC in a stock swap, after a $2.5-billion cash payout to its shareholders in a deal that was kept from its own senior executives until the end. Tisch told only CBS Inc. Chief Financial Officer Peter Keegan--his closest confidant inside the company--and Broadcast Group President Howard Stringer of his talks with Diller last weekend.

Tisch family friends first sensed things were amiss two weeks ago when Tisch attended the state dinner for Japanese Emperor Akihito with his wife, Billie. The affair was attended by hundreds of dignitaries, including a large contingent of powerful media executives.

Although Tisch was a self-made billionaire long before he got involved with CBS, the network provided him a kind of cachet that an empire built on insurance, hotels, cigarettes and expensive watches never could. That evening in Washington, as Tisch sat among the country’s power and cultural elite, was a symbol of lifetime achievement.

“You know, for all the grief we’ve been through, it’s finally been worth it,” Billie Tisch told a friend afterward.

The grief to which she referred was the public glare, indeed sometimes hostile criticism, that Tisch endured as chairman and guiding hand behind one of the world’s premier communications companies. Running CBS was like living in the proverbial fishbowl, with every move scrutinized by an uncompromising press and frequently ungrateful affiliates.

When Tisch began accumulating shares in CBS in 1985, the longtime investor was a virtual unknown to CBS executives--the late founder William S. Paley even confused Tisch with Tishman, a New York-based contractor. CBS, which had just emerged from a takeover attempt by Ted Turner and was still vulnerable to hostile bidders, turned to Tisch as a white knight.

But he wasted no time in quickly asserting control. After months of mounting frustration with then-Chief Executive Thomas H. Wyman, Tisch in 1986 was elected chief executive in a dramatic boardroom coup. He immediately set about doing what many feared Turner would have done had he succeeded in taking over CBS: selling off the company’s prized assets, such as its book and magazine publishing divisions, along with the crown jewel, CBS Records.

For many inside CBS, the writing was on the wall as far back as 1991, when Tisch announced a $2-billion stock buyback. When he assembled top CBS executives to give the news, the first words out of his mouth were, “We’re not going to be a conglomerate.” Moreover, it was clear none of his sons would be entering the business.

Ironically, Diller was seen as one of the last people to fill the succession role at CBS. People close to Tisch believed that if he ever did sell the network, it would go to a blue chip suitor, such as Walt Disney Co. Disney even had an edge because Tisch had long known the parents of Disney Chief Executive Michael D. Eisner.

Moreover, Tisch was said not to hold Diller in the highest regard. Once, when a CBS executive walked into Tisch’s office to tell him he was going to work for Diller at Fox, Tisch blurted out, “He (Diller) can’t do that!” The executive informed Tisch it was certainly possible because he didn’t have a contract. “But you can’t trust Barry!” Tisch snapped.

CBS is also something of a surprise move for Diller, since he loudly proclaimed upon leaving Fox that he would never work for anyone else again. Throughout his career, Diller has served under strong-willed entrepreneurs--Leonard Goldenson of ABC, Charles Bludhorn of Paramount and Rupert Murdoch of Fox.

Now, at CBS-QVC, although Diller would head the executive committee, the board of the merged companies would still favor CBS directors, and Tisch’s Loews Corp. would control about 10% of the stock.

“He gave up something he wanted for something else he really wanted,” said one adviser close to Diller.

CBS should soon notice their contrasting styles. Tisch’s no-frills operating procedure--his favorite refrain when fingering some overstaffed division is to criticize it for being a “belt and suspenders operation”--extends to his Spartan office at Loews, which associates joke is furnished like a 1960 Holiday Inn motel room. Tisch eschews limos and can be seen leaving Manhattan dinner parties by hailing a taxi back to his Fifth Avenue apartment.

As a matter of business philosophy, Tisch puts little stock in appearances, right down to the gritty soot accumulating on the uncleaned windows of Black Rock, the famous CBS headquarters in New York, which used to be washed weekly under CBS patriarch William S. Paley.

Diller, on the other hand, has long thought of himself as an heir apparent without a kingdom. He has spent most of his adult working life preparing for the ascension. Diller started in the mail room of the William Morris agency and within a few short years was heading programming at ABC. Before 40 he was running Paramount Pictures.

Even in play, Tisch and Diller are opposites. Tisch is a champion bridge player who unwinds by inviting friends to his Westchester, N.Y., home for aggressive games of doubles tennis and iced tea. Diller rides motorcycles, commutes between his Malibu, Coldwater Canyon and New York homes on a corporate jet, and socializes with fashion designers, writers and artists.

Tisch’s one flirtation with high rolling came in programming, with huge write-downs to pay for expensive sports broadcast contracts (prior to losing the NFL). He also paid $42 million to woo David Letterman away from NBC in the talent raid of the decade.

Nonetheless, Tisch has always been a contrarian, in business as well as broadcasting.

While rival networks NBC and Capital Cities/ABC were jumping into the cable TV by launching new networks, Tisch warmed the bench, insisting that the last thing CBS needed was “another new toy in the house.”

In fact, during the Tisch reign, CBS has made only two substantial acquisitions: a TV station in Miami (a move it was forced into when NBC bought its affiliate there) and another TV station in Minneapolis. Eventually, CBS executives became exasperated and stopped proposing deals.

“You’d sit in on one presentation and it would be summarily rejected,” one executive recalled. Tisch would even make a physical gesture--a motion like he was swatting imaginary flies--whenever someone proposed a deal.

And though Tisch could be refreshingly blunt in a business famous for doublespeak and herd-like instincts, he frequently turned a deaf ear to the once-proud CBS image.

When executives tried to counsel him on how to handle the latest flare-up at CBS News or some programming imbroglio, Tisch would invariably say: “So What? One bad story in the newspaper and the next day everybody will forget about it.”

The Companies at a Glance

The merger of CBS Inc. and QVC Inc. would create an entertainment-home shopping conglomerate. A snapshot of the companies:

CBS Inc.

* Headquarters: New York

* Chief executive: Laurence A. Tisch

* Employees: 6,500

* Major services: Operates seven TV and 21 radio stations in the United States; distributes programming to more than 200 affiliated stations.

* 1993 revenue: $3.5 billion

* 1993 profit: $326.2 million

* Earnings per share: $20.39

* Thursday stock price: $313.00, up $50.00

QVC Inc.