Captain Outrageous Opens Fire

By Stephen Koepp

"Okay, wow!" exclaimed a slightly flustered Ted Turner, as though he could hardly believe the audacity of what he was about to propose. Facing a bright battery of TV lights at a Manhattan press conference, the self-made cable king announced last week that he will try to take over CBS, the country's top-rated TV network. Following more than a month of rumors, Turner had finally raised the curtain on what could become one of the most dramatic takeover dramas yet.

Turner has put forth a novel, no-cash financing plan. His Atlanta-based Turner Broadcasting System will offer a complex package of several types of stocks, bonds and other securities worth $5.4 billion in exchange for all 31 million CBS common shares. The deal could take more than a year to complete, even if it comes offsmoothly, which is unlikely. Despite Turner's reputation for accomplishing the near impossible with such ventures as Cable News Network and SuperStation WTBS, the proposal represents an almost incredible reach. Wall Street financiers are skeptical that Turner Broadcasting, which had 1984 revenues of $282 million, has the muscle to endure a long fight with the giant media conglomerate (revenues: $4.9 billion). Yet some industry experts had predicted that Turner would never even manage to engineer a serious offer.

Sweeping out of last week's press conference like Errol Flynn in a gray suit, the triumphant Turner embarked on a twelve-block march to his law firm's Madison Avenue office. It seemed almost like a nose-thumbing gesture toward doubters in New York City's media and financial communities. "Hey, it's Ted!" cried star-struck pedestrians. Said one admiring businessman to a colleague: "That guy's got a lot of nerve!"

Turner needs more than just a brash concept. The merger he is proposing will be far tougher to arrange than last month's $3.5 billion take-over of ABC by Capital Cities Communications. In that deal, the vulnerable ABC willingly agreed to merge with the smaller firm in order to protect itself from undesirable suitors. But CBS is financially brawny and ready for a fight.

At the CBS annual meeting of stockholders last week in Chicago, Chairman Thomas Wyman affirmed his company's defiance toward the would-be raider. Before a crowd of 300 shareholders and 80 reporters, Wyman lashed out at Fairness in Media, a North Carolina-based conservative group and potential Turner ally that wants to see CBS taken over in order to end what it sees as a liberal bias in the network's news division. Declared Wyman: "Those who seek to gain control of CBS in order to gain control of CBS News threaten its independence, its integrity--and this country."

The North Carolina organization, pet project of Senator Jesse Helms, announced in January that it hopes to take over CBS by persuading conservatives across the U.S. to buy shares in the company. James P. Cain, a Fairness in Media co-founder, pronounced the group "delighted" by the Atlanta tycoon's move and promised its support.

While Turner backed away last week from any formal ties with the group, he pledged "to improve the quality, objectivity and diversity of CBS programming." In the past, Turner has criticized network fare in general for its "sleaze, stupidity and violence." His flagship station, WTBS, currently offers sports broadcasts and family-oriented material, including reruns of The Beverly Hillbillies, a show that CBS dropped in 1971.

The success of Turner's offer, though, will depend more on money than on moral issues. Under his plan, stock owners who trade in their CBS holdings for Turner certificates could earn a handsome $21.70 a share in annual interest and dividends, compared with $3 currently. Says Robert Ladd, a media analyst at Chicago's Duff & Phelps investment firm: "I may be in the minority, but it looks like a pretty good deal."

While Turner values this offer at $175 a share, some Wall Street analysts put its worth as low as $125. They believe that many investors may be unwilling to put faith in the unusual flurry of paper that Turner plans to issue. This includes low-rated, high-yielding certificates called junk bonds, which are largely backed by the expectations of future profits from the merged company. Said Lee Wilder, vice president of Atlanta's Robinson Humphrey investment firm: "The only thing Turner didn't throw into the deal were the bamboo steamers and the Ginsu knives," a reference to the products frequently hawked on WTBS. Concurred Edward Atorino, an analyst with New York City's Smith Barney: "It's all paper, nothing but paper. There's no money." Uncertain of the deal's value, investors pushed CBS stock up only $3.25 last week, to $107.

Turner Broadcasting hopes to help pay for the merger with CBS's own money, partly by breaking off chunks of the company after the deal is consummated. Turner said last week he would sell all 13 of the radio stations CBS owns and one of its five TV stations, in part to comply with Federal Communications Commission rules. After that, he might consider disposing of CBS/Records Group, which brings in 26% of total revenues, or the company's publishing division, which accounts for 13% of revenues.

Although CBS has ten days to consider whether it will accept or fight the deal, a fierce battle is certain. The company is expected to produce an impressive arsenal of legal and legislative weapons. Wyman has already secured a $1.5 billion credit line for the possible purchase of another company, which would make it more difficult for Turner to swallow CBS. The company is also rumored to be considering a defensive merger with General Electric or a similar firm.

The notion of Ted Turner as a boss riled old hands at CBS News. "I have yet to come across anybody at CBS News who has the slightest desire to work for Turner," said 60 Minutes Correspondent Mike Wallace. "No one takes him seriously." Walter Cronkite said that he "would be devastated" if CBS were taken over, adding, "CBS News has achieved the greatest credibility. It would be terrible to change all that."

The CBS takeover attempt is in character for a man who has always been somewhat larger than life. Turner was forced out of his Brown University fraternity for burning down the homecoming display, and finally left the school after being suspended twice. He entered the family billboard business at 24, after his father committed suicide. Turner was so successful in his advertising venture that he was able to acquire and enlarge a foundering local UHF television station. In 1976 he started bouncing its signals off a satellite to cable-TV systems across the U.S. The result: Super-Station WTBS, which now reaches some 34 million viewers and last year earned profits of $65.8 million on sales of $177.4 million. The Atlanta dynamo also owns the local Braves baseball club and most of the Hawks basketball team. Both teams have respectable records but do not make any profits.

In 1980, gambling nearly everything he was making from WTBS, Turner launched the 24-hour Cable News Network, a brazen challenge to the three major TV-news organizations. During the first few years, CNN lost about $50 million annually and seemed unlikely to survive. Turner persevered, though, and today CNN is nearly in the black. He has aimed to join forces with CBS since 1981, when he approached the network about taking over Turner Broadcasting. Rejected then and several times since, Turner finally decided to try to take over CBS.

Turner has had a flamboyant lifestyle, and his true character is difficult to fathom. He can put on the charm or turn rude and overbearing. The father of five, including a son named Rhett, he preaches family values yet is celebrated in Alanta as one who does not always practice them. He works obsessively but just as easily becomes a raucous, tobacco-chewing, beer-swigging good ole boy. A yachtsman who defended the America's Cup in 1977 and won the title Captain Outrageous, Turner showed up at a victory press conference roaring drunk and tugging at a bottle of aquavit. During a conference on arms control in Atlanta early this month, Turner dined with the likes of Jimmy Carter and Soviet Ambassador Anatoli Dobrynin. When the conversation began to bore Turner, he produced a tiny TV from his pocket, set the device on the table and proceeded to watch a Braves game.

In the past several years, Turner has tried to tone down his strutting style, seemingly in the hope of gaining acceptance among Wall Street's buttoned-down moneymen. He realized that his success in any takeover battle will depend on winning the confidence of institutional investors like pension funds, which hold more than 60% of CBS stock. Nonetheless, the drawling Southerner remains largely an outsider. When he went shopping for an investment banker for the CBS deal, he was reportedly turned down first by Drexel Burnham Lambert and then by Shearson Lehman. Finally he reached a deal with E.F. Hutton, a relatively inexperienced player in the merger game.

Despite the odds, Turner retains one of the most bullish attitudes ever seen in the business world. "I fantasize about everything," he once said, "being a fireman, an Indian chief, climbing mountains. Anything is possible." In trying to reach the lofty summit of CBS, Turner may find that this time he is scaling a sleeping volcano. --By Stephen Koepp. Reported by Marcia Gauger/New York and Lee Griggs/Chicago

With reporting by Reported by Marcia Gauger/New York, Lee Griggs/Chicago