TIME WARNER'S HEAD TURNER

By RICHARD CORLISS

New York City, Sept. 4, 1999: in an action that capped a decade of multibillion-dollar takeovers, the world's last two international media conglomerates today announced that they would merge. BMCAA Viafox (created out of Bertelsmann, MCA, CAA, Viacom and Fox) agreed to accept a bid of $638 billion in cash and stock from Disony GETCITWest (formed from a fusion of Disney, Sony, GE, TCI, Time Warner and Westinghouse). The new entity, which now controls all entertainment on film, TV, CD, video, telephone and computer, will be called, simply, Diller.

At the moment, that news from the future may only be Barry Diller's pipe dream. Diller, the onetime baron of Fox, last week bought into a skein of uhf TV stations to get back in the game. It is also a pipe nightmare for those who believe competition is the soul of both capitalism and pop-cultural creativity. But another deal last week brought the scenario a step toward plausibility. Time Warner and Turner Broadcasting System declared they were deep in negotiations that could lead to a Time Warner purchase, led by chairman Gerald Levin, of Ted Turner's prize fleet of media properties. If it flies, the deal would again make Time Warner the world's largest media outfit, vaulting over Disney, which has claimed the title for a month after agreeing to buy Capital Cities/ABC for $19 billion.

Time Warner would pay off TBS shareholders with a pile of stock valued at about $8.5 billion and, according to the deal's rough outline, make Turner a vice chairman of the combined company with authority over his previous holdings and may be more. Time War ner would get Turner's globe-straddling cable prop erties--CNN and the Cartoon Network, plus three other channels-along with two movie companies, New Line Cinema and Castle Rock, and sports properties that include the potent Atlanta Braves.

The offer of about $35 a share for tbs stock, which had been trading at around $24, was a boon for Turner shareholders, but the potential benefit for the buyer was the more controversial point. "This is an absolutely natural fit for Time Warner,'' says PaineWebber analyst Christopher Dixon, who stresses the success of Turner's programming in foreign markets. Other analysts, including Edward Froelich of Pershing & Co., are less impressed, partly because the heavily indebted Time Warner will be financing the deal by issuing an additional 189 million shares of stock, there by increasing the outstanding shares 50% and threatening to dilute their value.

Unlike Disney's lightning-quick buy of Cap Cities, the Time Warner-Turner deal is a work in progress. At week's end, at Time Warner's Manhattan headquarters, negotiations proceeded urgently. But the very announcement set off Wall Street speculation that other moguls, such as General Electric chairman Jack Welch and News Corp. chief Rupert Murdoch, would enter the bidding for Turner. But Murdoch denied any interest; and GE indicated that while it would not try to break up this deal, it remained interested in Turner if the Time Warner acquisition failed. Says Harold Vogel, a media analyst at Cowen & Co.: "The only thing that's clear is that Turner Broadcasting is in play. Ted has turned from a buyer into a seller."

The deal showed that the strategies of media kingpins are as fickle as a hemline length. For most of this year, Turner angled desperately to buy a TV network, first nbc in January and cbs until only a few weeks ago. Levin, for his part, had been talking of unloading the company's long-held 19% stake in tbs in order to pay down debt. The game changed when Disney and Cap Cities eloped, raising the ardor and insecurity of moguls everywhere.

On Saturday, Aug. 19, Levin and his wife flew to Montana for lunch at Turner's ranch. His wife, Jane Fonda, drove out to the local airport to meet the Time Warner business jet while Turner made sure lunch was ready. That day Levin laid out the details of the offer, which was the best deal Tur ner had seen for selling the company he had been building for more than 25 years.

But that pitch was only half the battle. The following week Levin summoned Time Warner president Richard Parsons from his vacation for a trip to Englewood, Colorado, where the two executives made their overture to the other major party in the deal, cable king John Malone, whose Tele-Communications empire owns 21% of tbs and holds three seats on its board.

Malone, a notoriously hard bargainer, has a large say in the deal since he could become one of the largest shareholders of Time Warner by virtue of his stake in TBS. One reason he may support it is that it increases the value of his company's investment in tbs by $670 million. But he may also want a sweetener. "Malone is a genuine genius,'' says Tom Southwick, pub lisher of Denver-based Cable World magazine. "His frictionless mind will find a way to make this work to satisfy his own shareholders.'' He is bargaining, for example, to ensure that TCI will have access to Turner and Time Warner shows.

"There are still a few hoops to jump through," says Jeffrey Logsdon, entertainment analyst for the Los Angeles-based Seidler Companies. "Malone is a big hoop. A role for Ted is a big hoop. But if it works, Time Warner will be such a large entity that it shrinks the universe of who can bother you. You eliminate three-quarters of the buyers who could attempt a takeover." Notable exception: General Electric.

In Hollywood, meanwhile, the latest maybe-merger is hot-wiring the rumor industry and alarming many players. "It's a horrifying chain of events," says Cary Brokaw, chairman of the independent Avenue Pictures. "Consolidations like this one could foreclose competitive outlets."

It's not horrifying to the reserved, tenacious Levin, whose job security has often been wobbly. He has been able to pare only a small amount of the company's $15 billion debt--a legacy of Time Inc.'s purchase of Warner Communications five years ago--and in the past year has seen stability of the huge Warner Music division sundered by the departure of six top executives. At year's end he may face another loss, if Warner Bros. movie co-chairman Terry Semel defects to run MCA.

Although Levin has known Turner and Malone for more than 20 years, the three have very different personalities, and some observers doubt they can be chummy long enough to seal a deal--or run a company. Turner and Malone would both control major chunks of Time Warner stock, 10% and 9% respectively. Although by law Ma lone could own only 5% of the voting stock, he and Tur ner would still have enough clout to oust Levin, especially if they were to join forces with other major holders like Seagram (9% if the deal were completed).

In the past, the impetuous, mercurial Turner has been frustrated by Time Warner's blocking of his planned acquisitions, such as his attempt last year to buy nbc. But in 1987 Levin envisioned folding the Turner enterprises into the Time Warner combination, even before Time Inc. bought Warner Communications. Time Warner executives have courted Turner for years, hoping to get him to fold his company into theirs. The sticking point was always the role Turner would play after such a merger. The offer last week of the vice chairmanship represented a significant concession by Levin.

Yet some observers wonder what the lure is for Turner. "Why should he become vice chairman of a public company?" asks Mario Gabelli, whose Gabelli Funds owns a big wad of Time Warner stock. "To get dividends on his stock? I just don't see it. Sure, he's a poor billionaire--but he has run his own show for 20 years. It's got to be something else. I'd love to know what they're offering him, sotto voce."

As for Malone, says an entertainment- industry executive who knows all the principals, "Levin and Malone don't get along" -a charge denied by a senior Time Warner executive. "When John talks, you'd better listen," continues the entertainment executive. "Malone and Turner will hold Levin's feet to the fire, which he won't like." Says another media analyst: "Buying Turner is the right strategic move, but personally Jerry is very brave. These guys are killers."

Turner and Malone are certainly formidable adversaries when they choose to be. But maybe this time Levin can harness the killers as his own hired guns. "Turner and Levin are smart enough to know they need each other," says analyst Logsdon. If Michael Ovitz, the ultrapowerful chief of CAA, could go to work for Disney's Michael Eisner, then surely Ted Turner could take a seat on Gerald Levin's TW board as a buccaneer emeritus, and do his vision thing. "Ted isn't someone who comes in the office every day and sits at his desk," says a top Time Warner executive. "He travels the world and comes up with great ideas. Some of them don't work, but the ones that do, work great." And the Time Warner deal may be one of them. "Turner teaches cats how to land on their feet," says a cnn correspondent who knows him well. "We are confident he'll do the right thing. He has confided to higher-ups--and I was there--that he would just as soon be a little fish in a big pond."

It appears that the onetime Mouth of the South wants to rev down his motor. "Do not discount the influence of Jane Fonda," says a former Turner confidant. "There is no question she has mellowed him. His blood pressure is down. He's closer to his children than before. He dresses better. He leaves the running of the business to his team so he can do his projects: the women's movement, the environment and raising buffalo. He spends only two or three days a month at tbs. Otherwise, he is out buying the West."

And perhaps selling himself, at a posh price. In the era of mega-merger mania, even a wildcatter could become a pussycat.

--Reported by Joseph J. Kane/Atlanta, John Moody and Barbara Rudolph/ New York and Jeffrey Ressner/Los Angeles

With reporting by JOSEPH J. KANE/ATLANTA, JOHN MOODY AND BARBARA RUDOLPH/ NEW YORK AND JEFFREY RESSNER/LOS ANGELES