Turner Merger May Be Delayed by Cable Firms : Media: Comcast and Continental are pushing Time Warner for the same terms granted to TCI.


As directors of Turner Broadcasting System Inc. prepared to meet today to discuss a proposed $8-billion merger with Time Warner Inc., new demands being made by two cable companies that are on the Turner board threatened to delay a vote, according to sources close to the talks.

One source said Comcast Corp. and Continental Cablevision Inc. were pushing Time Warner for the same terms granted to John Malone, chief executive of the nation’s largest cable operator, Tele-Communications Inc., which has won generous concessions from Time Warner to convert its 21% of Turner into a reduced Time Warner stake.

Comcast and Continental are among the approximately 20 cable operators, led by Time Warner and TCI, that invested about $600 million to rescue Turner Broadcasting in 1987, after a high-priced purchase of the MGM film libraries put the company in jeopardy.


Comcast and Continental representatives were among the directors who were briefed this week in preparation for a meeting of the 15-member board. Time Warner, which already owns more than 18% of Turner, and TCI each have three board seats.

At a cable industry dinner at the New York Hilton Hotel on Tuesday night, Ted Turner, chairman of Turner Broadcasting, told a small group of guests he was pushing to get the deal done by Friday--before the Jewish holiday Rosh Hashanah begins Sunday.

But sources said Comcast and Continental were trying to, as one said, “ride on Malone’s coattails” in pushing for concessions to go along with the deal, such as the right to carry Turner and Time Warner cable services at favorable rates under long-term contracts. Malone is thought to have secured contracts of longer than 10 years, compared to the usual three-year deals on popular TV services such as Turner’s Cable News Network and the Cartoon Channel and Time Warner’s Home Box Office pay service.

Some of the cable companies that remain invested in Turner worry that Comcast and Continental will use their leverage as directors to serve their own interests rather than the interests of the group of cable shareholders they represent as board members. These smaller cable concerns fear that Time Warner could raise prices on these services after the merger to compensate for the deals they struck with certain Turner shareholders.

“We might not know for some time what favors Malone and [Time Warner Chief Executive Gerald] Levin might be willing to give these board members to go along with the deal,” said one cable operator. “Time Warner could justify the rates by calling them volume discounts since these are the biggest cable companies. But it could be seen as an antitrust, price-fixing problem.”

The complex financial structures of both Time Warner and Turner Broadcasting have made the deal particularly nettlesome. Sources said investors such as Malone, Comcast and US West, which holds interests in Time Warner assets and is threatening to block the deal, could all lose strategic positioning after the merger and are trying to compensate by extracting promises while they still have leverage.


It appears that Comcast or Continental would have much less leverage than Malone. While Malone holds about 20% equity and about 49% of the important Class C voting shares, the group of cable companies control less than 5% equity and fewer than 10% of the voting shares.

One source said the two companies could challenge Malone’s right to veto the deal and argue that he was using his leverage as the largest cable operator. TCI, which reaches one of every four cable households, is an important outlet for CNN and Turner Network Television, two basic cable services.

Still, one source close to Turner Broadcasting said he thought these issues could be straightened out before the board meeting.