The major players in the field of corporate takeovers have held center stage for a long time. In the second of two excerpts from his forthcoming book “Clash of the Titans” (New Millennium), the author provides a perspective on the present maneuverings.
The smog seemed to have settled permanently on Pico Boulevard at the entrance to 20th Century-Fox. A brown wash of particles hung as if draped across the sets from Hello Dolly, their deteriorating facades visible from the street as Rupert Murdoch made his way onto the lot and into the office of studio head Barry Diller.
Diller and Murdoch had reached a comfortable working relationship — the aggressive head of Fox wielding a free hand to mold and fashion the studio in his image, with Murdoch wise enough to give Diller the financial support that Marvin Davis had not.
The perpetually tanned and demonstrative Diller, who had gotten his early Hollywood credentials working for ABC television, where he developed the concept of made-for-TV movies. He was using Murdoch’s six Metromedia stations (plus an additional station purchased in Boston) as the core of what the press were billing as a “fourth network” to compete against NBC, CBS and ABC.
It was an ambitious concept, even for Murdoch, and the chances of success were slim. Ever since the late ’70s, the networks’ share of television viewership had been dropping — from 90% down to 75% of American households. Their grip on TV audiences had been loosened by the emergence of videotapes, cable and an ever-growing number of independent stations, each tugging at the same finite number of viewers.
Diller’s concept for making the Fox Network a reality was simple: deliver alternate programming that was judged too risky, crude or controversial for traditional broadcast networks. Diller’s first effort was a late-night talk show to star comedienne Joan Rivers, a popular fixture on NBC as the regular substitute for late-night champ Johnny Carson on his Tonight show. When Diller first mentioned Rivers to Murdoch, he had no idea who she was. Yet it did not matter to Murdoch if she was known or even funny; it only mattered that Diller thought she was powerful enough to launch his network.
The announcement of the Late Show with Joan Rivers came in early May 1986, set in the formal sculpture garden of Fox TV’s Los Angeles affiliate KTTV. The collected television press snacked on breakfast canapés and coffee, unaware that Rivers had been reduced to tears just feet away from their location. The comedienne had arrived moments before the press and was desperate to speak with Johnny Carson, hoping to break the news of her defection from NBC and the Tonight show personally to him. Carson, however, had been told the news by NBC president Brandon Tartikoff and refused to speak to Rivers when she said, “Can we talk?” The resulting crying binge brought Diller and his newly hired Fox Broadcasting president Jamie Kellner racing to the side of the new network’s first star, and the pair remained by her throughout the course of the press conference.
“Joan Rivers has brought a real sense of adventure and audacity to television,” Diller said in introducing the host of the first regularly scheduled program of the Fox network. Little did Diller know the extent of the adventure and audacity that Rivers and her show soon would bring to the studio. When the Late Show premiered on Oct. 9, 1986, it was carried on 95 stations, reaching 85% of American homes.
Hit by a sluggish economy, the three traditional networks were struggling with layoffs, management changes and continuing belt-tightening. Murdoch responded by pitching his Fox Broadcasting as the cornerstone of a global network that included his Sky Channel in Europe and Network Ten stations in Australia. Among the advertisers that bought the premise, Gillette Co. signed a $4 million agreement to air a coordinated campaign across the continents. It was, of course, a natural extension of Murdoch’s method of doing business. The Australian-turned-American headed an Australian company headquartered in New York with newspapers and satellites capable of reaching every corner of the globe.
The international base was also reflected in Murdoch’s unique method of refinancing his mounting debt. Rather than issuing preferred shares of News Corp. that could be converted into common stock in the company (typical, but also highly dilutive to Murdoch’s majority control), Murdoch went to the Euromarket with another offer altogether. Two hundred thousand shares of non-voting preferred stock in News Corp. that could be converted into common stock in Reuters Holdings, the British-based international news service in which Murdoch held a 9% stake. It was a bit of global hocus-pocus that was unheard of, but not illegal.
Turner, of course, was facing a similar financing dilemma to pay off the high-interest junk bonds that paid for his purchase of MGM Studios. Turner’s approach at refinancing, however, was more predictable, though surprising nonetheless. In a move that was as remarkable for its timing as it was for its structure, Turner announced that he was stepping aside from the day-to-day management of TBS and assigning the business of running the corporations various divisions to a five-man management committee composed of veteran TBS executives. The quintet included Robert Wussler, TBS exec VP and former CBS network president Jack Petrick, exec VP-general manager of WTBS, charged with handling the MGM film library; William Beins, Turner’s longtime CFO and vice-president; Gerald Hogan, Turner’s advertising VP; and Terence McGuirk, his VP of special projects overseeing legal and cable matters.
Media analysts watching from the sidelines were open with skepticism about the legitimacy of the announcement, with most suggesting it was little more than subterfuge created to impress the financial community. “He would never even let the five go out and have a beer together, let alone run the company,” said one.
Turner’s agenda became apparent several months later, when, on Jan. 13 1987, the media mogul made an open appeal to cable industry leaders to save his company from falling into “enemy” hands. In this case, the enemy was Rupert Murdoch, and rumors were rampant that he intended to gain control of TBS. “We had enormous value to the cable industry,” Gerry Hogan said. “The worst thing that could happen to them would be that we’d sell something to Murdoch …”
Tele-Communications’ John Malone captained the meeting of cable executives from ATC, Cox, Continental, United and Warner, who listened quietly while Turner solicited an influx of quick funds. Lots of funds. Half a billion. In exchange, Turner was willing to part with one-third of Turner Broadcasting. While it was not an instant sell, it was hardly a difficult decision for Turner’s major customers. What was good for Turner ultimately became good for the cable industry. With their self-interest in mind, the cable companies passed the hat and publicly rescued Turner from being devoured by his debt.
Turner would later say that the buy-out was only one of several options he had available to him. Clearly, it was the most synergistic, yet when the final agreement was announced on June 3, 1987, it was painfully obvious that Turner, the maverick, had been roped and tamed for $562.5 million. In exchange for the cash, Turner transferred ownership of 37% of TBS as well as gave up seven seats on his 15-seat board of directors to the cable interests. He also agreed to place an expenditure that exceeded $2 million up for a vote of the board, with a four-fifth’s majority needed to proceed.
Tamed and roped.