Company Town : Synergy, Yes, but Maybe Not Together

Can Time Warner Inc. and Turner Broadcasting System Inc. reap cost savings and synergies by combining? Maybe, analysts say, but they probably could do better with other partners.

To be sure, a Time Warner-Turner merger would create the world’s largest entertainment and media conglomerate, with the nation’s second-largest cable system, a slew of cable channels, a handful of movie studios, strong news-gathering and publishing divisions, an animation studio and even a pair of professional sports teams.

But some analysts doubt that would produce major cost savings for either company or create the types of synergies that are fueling this summer’s merger mania.

“There’d be synergies of a kind with Time Warner and Turner,” said Harold Vogel, an analyst with Cowen & Co. in New York. “But there would be just as many synergies--and perhaps even better ones--with General Electric or News Corp. for Turner.”

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Alan Kassan, an entertainment analyst with Dean Witter Reynolds in New York, said the Time Warner-Turner combination that is on the table would provide some major efficiencies. By airing Warner Bros.’ movies--such as “Batman Forever” and “Lethal Weapon”--on Turner’s TNT and the Cartoon Network, Turner could boost his international viewing audience.

Warner Bros.’ animation unit, which has been producing cartoons for the WB network’s Saturday morning lineup, could sell shows to the Cartoon Network. Turner’s other channels would also provide new outlets for Time Warner’s huge film library.

Another analyst, Mark McFadden of Bankers Trust in New York, said the combined companies could draw from CNN and Time magazine to create news content for a multimedia environment, such as an Internet-based news service or educational CD-ROMs. Turner’s Castle Rock Entertainment and New Line Cinema studios might be able to reach wider audiences using Warner Bros.’ distribution network, he said.

But other advantages are not so clear. For example, Time Warner would probably not be able to reduce the overhead of its movie studio by taking on Castle Rock and New Line. Those studios would double Time Warner’s movie output and probably require a doubling of overhead, said Dennis McAlpine, a media and entertainment analyst with Josephthal Lyon & Ross in New York.

In fact, analysts stressed that while a deal between Time Warner and Turner makes sense in many ways, there are other companies that arguably would be better strategic partners for both of them. General Electric Co., parent of NBC, is frequently mentioned as a better partner either for Turner or Time Warner. Some analysts expect the New York-based conglomerate to enter the fray next week.

An NBC-Turner matchup would provide immediate cost savings by allowing the companies to combine their news-gathering operations, especially overseas. When the two companies held merger talks earlier this year, GE estimated it could save $150 million a year by bringing CNN under its roof, analysts said.

Turner could also pair up with Rupert Murdoch’s News Corp., which would bring a strong news division to the Fox Network so it could become a full-fledged competitor to ABC, CBS and NBC.

Viacom Inc. might also be a strong fit for Turner. By bundling its MTV and Nickelodeon channels with Turner’s cable offerings, Viacom could squeeze more money out of cable operators by sheer strength of bargaining power, McFadden said.

Analysts also note that Time Warner would match up well with GE since the two companies have few overlapping operations.

All of which is not to say that Time Warner won’t prevail in buying Turner,

Said McAlpine: “There weren’t too many real synergies with Disney and Cap Cities, either, but the media loved it anyway.”

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A Better Match?

Some analysts say Time Warner and Turner would find greater synergies with different partners:

* Turner-News Corp.: Although Rupert Murdoch has said he would not enter a bidding war for Turner, and Turner would rather not sell to Murdoch, several analysts say this combination makes the most sense. Owning CNN, in particular, would give the upstart Fox Network the news organization it needs to become a full-fledged competitor to ABC, NBC and CBS.

* Turner-General Electric Co.--Turner has long dreamed of combining with a broadcast network and has had his eye on GE’s NBC. Combined, the companies could save $150 million a year just by merging their news-gathering forces, one analyst says.

* Time Warner-General Electric--The NBC network would complement Time Warner’s movie studio and cable channels in much the same way that Walt Disney Co.’s businesses will complement Capital Cities/ABC Inc., analysts say.

--KAREN KAPLAN