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Cable television broadcasting industry

Time Warner and Turner Broadcasting System on the Brink of Massive Merger

Strategic Insights

— 2 min read

Executives of Time Warner Inc., Turner Broadcasting System, and Tele-Communications Inc. engaged in a flurry of negotiations in New York to finalize a deal that would see Time Warner acquire Turner for approximately $8.5 billion. The proposed acquisition would create the world's largest entertainment empire, combining Hollywood studios, music companies, cable-TV programming, and theme parks. However, a key hurdle in the process is satisfying John C. Malone, the CEO of Tele-Communications, who holds a 21% stake in Turner. Malone has been meeting with Time Warner's chairman, Gerald M. Levin, and Turner's chairman, Ted Turner, to discuss the terms of the deal, including the conversion of Tele-Communications' shares to Time Warner stock.

Key Takeaways:

  • Time Warner and Turner Broadcasting System are on the verge of a massive merger, creating the world's largest entertainment empire.
  • The deal would see Time Warner acquire Turner for approximately $8.5 billion.
  • John C. Malone, CEO of Tele-Communications, holds a 21% stake in Turner and must be satisfied with the terms of the deal.
  • Time Warner executives are working on ways to create voting and nonvoting shares to reduce Malone's voting stake in Time Warner to less than 5%.
  • Ted Turner would become the vice chairman of Time Warner and own 10% of the voting stock.
  • Time Warner believes the acquisition would provide strategic advantages, including global growth potential and the combination of Time magazine and CNN resources.
  • The deal faces opposition from Seagram, which owns a 14.9% stake in Time Warner and would see its stake cut to 8% after the acquisition.
  • Analysts believe the combined Time Warner-Turner could prove to be a powerful engine for growth in earnings, but may not come soon enough for other stakeholders.

Statistics:

  • Time Warner has offered to acquire Turner for approximately $8.5 billion.
  • The deal would see Time Warner issue 189 million shares to acquire Turner Broadcasting.
  • Time Warner's shares dropped 87.5 cents, to $41.375, in heavy trading on the New York Stock Exchange.
  • Turner Broadcasting's class B shares rose $6.50, to $30.50, in a clear sign that investors expect other companies to join the bidding for the Atlanta-based company.
  • Tele-Communications has an 8% stake in Time Warner's stock and would assume a 5% stake if the deal is completed.
  • Seagram owns a 14.9% stake in Time Warner and would see its stake cut to 8% after the acquisition.

Sources:

  • The Wall Street Journal, Page D1.
  • Cowan & Company analyst Harold Vogel.
  • Merrill Lynch & Company analyst Jessica Reif.
  • Time Warner executives, including Gerald M. Levin and Ted Turner.
  • Tele-Communications executives, including John C. Malone.

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