Levin Must Prove His Adeptness as a Master Manager

With the agreement in principle announced Wednesday to clear the way for Time Warner Inc.’s $6.5-billion acquisition of Turner Broadcasting System Inc., Gerald Levin has again proved his mettle as a deal maker.

Bigger challenges lie ahead of him as a manager, however, as he tries to make the giant entertainment and media conglomerate live up to its global potential.

Among the tasks facing Levin once the Turner deal is completed--assuming, as expected, that the Federal Trade Commission gives its final approval within a few weeks--are restructuring a complex alliance with US West Inc., getting along with his erstwhile rival and new biggest shareholder, Ted Turner, and neutralizing potential threats posed by cable TV magnate John Malone and Seagram Co.’s Edgar M. Bronfman Jr.

But from Wall Street’s perspective, the point of the whole exercise is for Levin to do something about Time Warner’s stock price. Even after a $3.375 surge to $36.625 in New York Stock Exchange trading Wednesday, Time Warner shares were far below the high point of $46.875 they reached in 1993.

Levin has never lacked for critics, and it hasn’t escaped their attention that the company’s stock has languished in the midst of a five-year bull market.

Still, some Time Warner watchers on Wall Street on Wednesday credited Levin with skillfully handling a fast-changing competitive and regulatory environment. They think the conglomerate is poised for the kind of success that was predicted much earlier, when Time Inc. merged with Warner Communications Inc. in 1990.

The Turner deal “is really good news for Time Warner” and a “good first step” toward getting the stock price back up, Merrill Lynch analyst Jessica Reif said.

Mario Gabelli, whose Rye, N.Y.-based Gabelli Asset Fund holds about 5 million Time Warner shares, said the stock was “miserably oversold” by skittish investors in Tuesday’s seesaw market session. At one point during trading Tuesday, the price dipped to a 52-week low of $29.875. And although Time Warner is already his fund’s largest holding, Gabelli said he bought more shares Tuesday.

Levin was not commenting on the Turner deal Wednesday because, a spokesman said, “it is only an agreement in principle.”

But the company is already preparing its “road show”--the campaign during which Levin and other executives will call on key investors and analysts to explain how the deal will work, according to analyst Michael Kupinski of A.G. Edwards & Co.

After the acquisition closes, analysts said, Levin would need to focus on US West, the Denver-based “Baby Bell” that invested $2.5 billion for a 25.5% interest in Time Warner Entertainment, a partnership that includes such Time Warner assets as Home Box Office, Warner Bros. studios and most of its cable TV operations.

US West sued to block the Turner deal, and although the lawsuit failed, Gabelli said Levin must eventually come to terms with his disgruntled partner, perhaps by turning over some cable assets.

Time Warner’s relationship with Tele-Communications Inc., the cable giant headed by Malone, will be defined in large part by the final terms of the deal with the FTC. TCI owns 21% of Turner through its Liberty Media unit and would have a 9% stake in Time Warner after the merger. Regulators reportedly were leery of a linkup between the nation’s No. 1 and No. 2 cable operators, and so the final deal will diminish TCI’s voting power in the merged company.

Malone has been supportive of Levin so far, analysts said, but he will not be happy with a passive role if the stock performance continues to be poor.

A wild card for Levin is the presence of Seagram, one of Time Warner’s largest investors, with more than 50 million shares. Bronfman was reportedly upset about the Turner deal because it will dilute his holdings.

And as for Turner himself, how long will the onetime holder of the America’s Cup be content to have Levin at the helm?

In Gabelli’s view, all such problems can be resolved in the stock market.

“There’s only a conflict if the stock doesn’t go to $50,” Gabelli said. “If it does, everybody’s a winner and they’re all your allies.”