Negotiations between Turner Broadcasting and NBC are heating up, with execs from both sides getting down to the fine details of a merger.
Turner and NBC execs, along with Turner’s advisor Randy Booth and Herbert Allen Jr., advisor to NBC parent GE, have been talking for several weeks about putting together the two companies. Those talks have now advanced to the stage where Turner is doing due diligence on NBC – right down to individual network staffers, say people close to the talks.
Still to be resolved are the legal and financial hurdles in the way of a deal, including federal regulations which prevent cable operators from owning more than 5% of a broadcaster and the opposition of Turner shareholder Time Warner to such a deal.
Time Warner’s stance is one of Turner’s biggest problems. Time Warner has said repeatedly that it wants to “monetize” its 19.4% stake in Turner, with one option being to exchange one of Turner’s assets like the Cartoon Network for its shareholding.
Turner has been reluctant to agree, but there have been suggestions in recent weeks that Ted’s attitude could be softening. Another problem is that GE chairman Jack Welch wants a deal in which GE would keep 51% of the network, while Turner also wants a majority stake.
Easier to deal with are the legal hurdles. Communication lawyers say there are a number of different ways that Turner could get around the cross-ownership laws, including simply issuing enough stock as part of the purchase to dilute Time Warner and TCI’s shareholdings below the 5% threshold.
Turner could also buy the network through a partnership in which it had only a limited interest. Or it could take advantage of the “multiplier” rule, by putting the network into a company in which Turner owned less than a 51% stake. That would reduce the voting stake of Turner’s shareholders to under the 15% level.
A Turner spokesman refused to comment Jan. 13 on a Wall Street Journal report which said Turner had designed such a plan, although the Journal reported that Turner wanted to keep 51% in the network. One lawyer said Turner’s stake would have to be below 51% to get around the legal problem.
The bottom line is that “if Time Warner and TCI would cooperate there are a number of different ways to solve this problem,” a source said.