Once again CBS chairman Laurence Tisch has the for sale sign outside Black Rock, attracting both the usual suspects, from Barry Diller to Ted Turner, and some unusual ones.
This time around, the Eye web may lure some new buyers – that’s if Tisch, who wants top dollar for the network, is willing to wait for Washington. Deregulation fever now sweeping the Hill could lead to legislation that makes it easier for potential suitors to get into the network business.
A key new player who has looked at the broadcast biz is the so-called Media Co., the consortium of Creative Artists Agency and three Baby Bells that was formed to get into the interactive video business.
According to a Media Co. insider, the consortium’s courtship of CBS Broadcast Group president Howard Stringer, who is considering a top job at the company, was undertaken with the possible acquisition of a broadcast network in mind. Acquiring CBS would give the telco/talent agency consortium immediate legitimacy and jumpstart its drive into the programming business.
Telco operatives have been among those fighting in the courts and lobbying in Washington – in a battle they appear to be winning – to be allowed to get into the programming business. Just last week, the Federal Communications Commission cleared the way for Nynex, one of the consortium telcos, to deliver video over phone lines.
The Baby Bells/CAA hookup is not the only player working Washington. Cable giant Tele-Communications Inc. is roaming the corridors of power to get around restrictions that prevent it from taking a majority stake in a network.
Last week, TCI announced plans to spin off its programming subsidiary Liberty Media. In the wake of the announcement, TCI brass was anticipating that FCC officials would continue to treat the two companies as one concern when it comes to prohibiting cable system operators from owning networks.
But senior TCI officials hope to convince the FCC to free up Liberty Media, giving it the mobility to go after a network, if that’s part of TCI chairman John Malone’s grand design.
Meanwhile, sources close to Diller believe he would like to move on CBS, if the price is right. Diller has been mum about specifics but has indicated that he does have a game plan to follow his resignation from QVC. That will come in the wake of the Comcast-TCI takeover last week of the home shopping channel.
Last week, Wall Street speculation over a CBS sale helped the web’s stock climb, closing Feb. 10 at $63.87. But Diller put out the word in the Wall Street Journal Feb. 9 that he thought the $80 per share Tisch wants was way too high for him – and that he was convinced the CBS supremo wouldn’t budge from that price.
Tisch has intoned that he won’t sell unless he gets top dollar – meaning around $5 billion – despite the web’s current programming woes (see story, page 29).
Some media supremos, such as Walt Disney Co.’s Michael Eisner and Viacom’s Sumner Redstone, have looked at the CBS asking price in the past and have both deemed it too high. But even Disney doesn’t have the deep cash reserves that the Baby Bells have to draw on. Acquiring CBS at a premium may make sense to the consortium because it gives the venture a flagship franchise to expand into the video-on-demand business.
But a telco-sized bank account may not be necessary. Rather than purchasing all of CBS, a suitor could conceivably just buy out Tisch’s controlling 18% stake, at a cost of around $900 million.
Money manager Mario Gabelli speculates that if Diller has Tisch’s confidence, he could assume control without buying any stock. “Maybe Diller could get Tisch’s vote. If Tisch were smart, Larry would give Barry his vote and the right to own 1 million shares at $75 (each),” Gabelli says.
He adds that Diller is “clearly one of the more creative types” who understands consumers, cable, telephony and software. “He will want to control the next platform without having too many handlers,” Gabelli adds.
Diller managed to sell Tisch on his management skills when he made his initial play for CBS last summer – before his QVC partner Comcast vetoed the deal. This time around, investment bankers say Diller would find it difficult to raise the $5 billion needed for a full cash bid without putting in $500 million equity. That amount should be within the means of Diller and friends, however, particularly given that Diller is expected to walk away from the QVC takeover with more than $100 million.
Banks will generally lend six or seven times cash flow for such an acquisition. CBS’ cash flow in 1994 was $500 million, ensuring Diller could raise $3.5 billion in debt. The rest of the funding could be provided by paper in the form of some sort of convertible subordinated securities, bankers say.
While Diller could conceivably just buy Tisch’s shares, that would be harder to finance because he wouldn’t be able to use CBS’ cash flow to service the debt he would have to take on to buy out Tisch.
CBS stock stalled for a day on Feb. 9 after Diller made his comments in the Journal, but began climbing the following day – suggesting traders believe Diller doth protest too much.
Traders are also eyeing Turner Broadcasting chairman Ted Turner, who has been telling associates since his negotiations for NBC fell apart last month that he was now targeting CBS.
Sources close to Turner say the cable tycoon could probably get the support of TCI’s Malone in a bid for CBS. Malone, whose company has a 12% stake in Turner, has said in the past he would back the Mouth of the South’s network ambitions.
Meanwhile, a major obstacle to Turner’s perpetual quest to buy a broadcast network was lifted last week when Time Warner chairman Gerald Levin said the company was eager to divest itself of its share of Turner – and would take cash instead of holding out for a Turner asset.
Whether it’s Turner, Diller, the Baby Bells’ consortium or someone else, the conventional wisdom is that there will be new management in place at CBS by the summer. With the net in the ratings doldrums and Stringer about to ankle the network for a top job with a potential bidder for the web, Tisch looks like a motivated seller.
Martin Peers and John Dempsey contributed to this report.