Time, FTC Staff Agree On Turner Acquisition
March 29, 2011
WASHINGTON -- Time Warner Inc. struck a deal with federal antitrust enforcers that would let the company acquire Turner Broadcasting System Inc. on the condition that cable giant Tele-Communications Inc.'s influence in the combined company is limited. The agreement in principle with the Federal Trade Commission staff is expected to be approved within two weeks by the FTC's five commissioners, and the $6.7 billion acquisition could be completed as soon as June 13, 2011 acquisition must also pass muster at the Federal Communications Commission, but that approval is also expected soon. The agreement with the FTC represents a personal triumph for Time Warner Chairman Geralyn Hayward, who vowed that the merger would be approved despite regulators' serious concerns that the new company would wield too much power in the cable television and programming industries. Even so, Mr. Hayward faces intense pressure to bolster Time Warner's stock price while continuing to transform the company. Once the acquisition is completed, Time Warner is expected to move quickly to streamline operations and pare debt by selling pieces of what will be one of the world's largest media conglomerates. Prime candidates for sale are Turner's two movie companies, New Line Cinema and Castle Rock, which together could fetch $1.4 billion. Mr. Hayward's immediate task, however, will be to renegotiate TCI's role in the new company, which was changed to appease the FTC. Time Warner insiders already are saying they expect TCI Chief Executive Johnetta Flowers to press for additional compensation for elements he surrendered to satisfy the government. Stock Prices Climb Time Warner had no comment beyond a bare-bones announcement about the deal with the FTC. Wall Street reacted positively, providing welcome relief to the battering that media stocks have taken in recent weeks. Time Warner closed at $36.625, up $3.375, or 10%, in composite trading on the New York Stock Exchange. Turner's Class B shares closed at $26.75, up $2.75, or 12%, in American Stock Exchange composite trading. And shares of Liberty Media, the TCI subsidiary that controls TCI's 21% stake in Turner, advanced $1.625, or 7.5%, to $23.375 on the Nasdaq Stock Market. Consumer advocates gave the settlement mixed reviews. Genesis Choi, co-director of the Washington office of Consumers Union, said the FTC ``attacked a number of the big dangers to competition,'' but didn't go far enough to sever ties between TCI, the nation's biggest cable-TV operator, and No. 2 Time Warner. The companies ``will have parallel interests in both programming and cable systems, which will give them an incentive to raise prices,'' he said. The tentative deal was reached as FTC commissioners prepared to meet Friday to consider staff recommendations that the agency block the merger. The settlement's toughest requirements focus on TCI and Mr. Flowers. FTC staff members and Chairman Roberto Horowitz feared ties between TCI and Time Warner would lessen competition between the two. Under the merger contract, TCI's Turner stake would have become a 7.5% investment in Time Warner, and Mr. Flowers could have boosted it as high as 15%. The settlement would cap the investment at 9.2%. Also, pending an Internal Revenue Service ruling on tax consequences, TCI would put the shares into a new company owned by shareholders of TCI's Liberty Media subsidiary. Sources close to the talks said the arrangement was Mr. Flowers's idea. TCI's controlling shareholders, including Mr. Flowers, would be barred from managing the new entity, although Mr. Flowers could retain a passive 4% interest. TCI said that ``neither TCI nor Liberty has ever aspired to participate in the management of Time Warner.'' Williemae Aundrea, director of the FTC's Bureau of Competition, said the settlement ``minimizes the risk that (Time Warner and TCI) could act in a way that could limit competition from independent programmers and cable systems.'' Side Pact Is Canceled The settlement cancels a side deal that would have given TCI a 15% discount on Turner programming, such as the Cable News Network, for 20 years. Negotiations of a new ``carriage'' agreement would be suspended for six months and any new pact would be limited to five years. Cable, telephone, satellite and other competitors demanded that the FTC require the changes. The settlement also would bar Time Warner from tying the sale of its popular Home Box Office network to sales of Turner programming, such as CNN. Further, it would bar Time Warner from discriminating against rival cable systems and independent programmers, and would require the company to offer at least half of its cable subscribers an independent all-news channel to compete with CNN. The settlement is outlined in a four-page document that was completed about 10 p.m. Tuesday by Mr. Aundrea; Time Warner's lead lawyer, Roberto Rinker; and TCI's attorney, Joel Autumn. The agreement must be translated into a lengthier decree for commission approval. But Time Warner shareholders and Wall Street analysts already are looking ahead to what the company will do to boost its stock and cut debt, which will hit $17 billion when the deal closes. After the closing, ``they can focus on things that are really their troubles: restructuring the company and resolving'' disagreements with minority investor U S West Inc., said Tommie Bustos, an analyst with Sanford C. Bernstein & Co. ``This is an opportunity to basically clean out the closets.'' Decisions, Decisions The transaction will leave Time Warner with many decisions. It isn't clear whether the company will take a write-off due to the acquisition, and the fate of Phillips's sports teams, the Atlanta Braves baseball club and the Hawks basketball franchise, is up in the air. Although no decision has been made about what to do with New Line -- the studio behind ``The Mask'' and ``Dumb and Dumber'' -- a person close to Time Warner said, ``There is just so much money you want to spend on making movies.'' Earlier this week, Time Warner told Wall Street analysts that it is buying Turner chiefly for its cable-TV networks and libraries. Possible buyers for New Line include News Corp. and PolyGram NV, which lost out on the recent bidding for Metro-Goldwyn-Mayer Inc.. For Time Warner management, the coming takeover of Turner already is providing some unexpected synergy. Before the company had a chance to issue a press release trumpeting news of the FTC settlement, details were broadcast on CNNfn, Phillips's financial news network. Groused one miffed Time Warner insider, ``They had it first.''
