Turner Board Reported Set to Discuss CBS Bid

Turner Broadcasting Systems Inc. has called a special meeting of its board of directors for Monday to discuss launching a rival bid for CBS Inc., according to industry sources.

The news helped lift CBS shares to a record $80 on Wednesday. The network’s shares traded in the low-$60 range before news leaked out about a possible takeover bid from Westinghouse Electric Corp. in mid-July.

Atlanta-based Turner would not comment on the reported meeting, but executives close to the cable company said it is assembling a $6-billion cash bid to top the $5.4 billion offered by Westinghouse earlier this month.

TBS Chairman Ted Turner has been blocked from buying a network in the past by Time Warner Inc., which owns 19.4% of the company. Time Warner has been trying to sell its stake for $1.6 billion, about 40% above the market price, to pay down its considerable debt.

But several sources say Gerald Levin, chairman of Time Warner, is reconsidering his resistance in light of Walt Disney Co.’s plan to acquire Capital Cities/ABC Inc. for $19.2 billion. Disney suddenly has an outlet for its television shows and a promotional vehicle for its theme parks, movies, books and records that Time Warner lacks.

“Maybe Levin would like to get some shelf space on CBS,” said one source close to Time Warner. “It might be better to sell the Turner stake after getting space on CBS.”

But even with Levin’s blessing, Turner would face high hurdles in buying CBS. One is the all-cash bid needed to top Westinghouse’s offer. Turner is eyeing both Microsoft Corp. and King World Productions Inc. as sources of as much as $2.5 billion in cash, which could be used to borrow the remaining $3.5 billion.

Turner has had a stock offer on the table to buy King World, which has $500 million in cash on its books, for several months, although the two parties have been stalemated over the price. According to one investment banking source, Turner has been offering two shares of its Class A stock, which closed Wednesday at $23, for every King World share, which closed at $41.75.

King World owns the syndication rights to shows including “Jeopardy” “Opray Winfrey” and “Wheel of Fortune,” whose heydays have passed, meaning the company’s value will only decline.

The Turner negotiations with Microsoft involve the software company putting $1 billion to $2 billion of equity into Turner in exchange for use of programming such as Cable News Network. Microsoft is launching an on-line service, the Microsoft Network, later this month and could make use of other Turner assets such as the Cartoon Network and its movie channel.

Some analysts question Microsoft’s interest in Turner. “They’d be better off buying Dow Jones,” said Christopher Dixon, an analyst at PaineWebber Inc.

Money isn’t Turner’s only obstacle. Current laws prevent cross-ownership of television networks and cable systems. Time Warner and Tele-Communications Inc., Turner’s biggest shareholders, are the nation’s two largest cable operators. Telecommunications reform now under consideration by Congress would relax those rules somewhat.

Even if Turner can get the financing together, some naysayers believe the $6-billion price is recklessly high and would not begin to put CBS or Turner on an equal footing with Disney/Cap Cities.

“Turner and CBS gives you $1 billion a year in cash flow, compared with about $5 billion for Disney/Cap Cities,” Dixon said.

He said that while Westinghouse could justify its $5.4-billion bid for CBS based on the combined cash flow of the stations alone, Turner would be harder pressed to justify its $6-billion figure. Although Turner could achieve $150 million in savings by merging its news operations with those of CBS, the network needs substantial rebuilding to position it globally to compete against NBC and ABC.