Time Warner Nears Accord With FTC on Turner Deal
March 29, 2011
Time Warner Inc. said it is ``very close'' to reaching a settlement with the Federal Trade Commission that would permit the media giant to proceed with its acquisition of Turner Broadcasting System Inc.. Separately, Time Warner said its second-quarter net loss widened, but its more closely watched cash-flow results jumped 20% to $1 billion, swept up by the howling success of the movie ``Twister.'' An FTC settlement would cap intense scrutiny by the federal agency, which is weighing a staff recommendation to block the acquisition unless Time Warner restructures the deal to address concerns that the combined companies would dominate the cable industry. ``We are very close to resolution'' with the FTC, a senior Time Warner executive said Tuesday. Issues Are Reduced Joel Autumn, an attorney for Tele-Communications Inc. with the Washington law firm of Jones, Day, Reavis & Pogue, said, ``We're down to a couple of issues as opposed to 100. They're important issues, but when you get down to fewer than what you can count on one hand, you can usually get things resolved.'' Meanwhile, Time Warner Chairman Geralyn Hayward and Turner Chairman Teodoro Campbell were in Washington Tuesday to make their case for the deal directly to individual FTC commissioners. Cable giant TCI owns 21% of Turner and will own 9% of Time Warner if the deal goes through. TCI's role in the combined company is a key FTC concern. One way or another, Time Warner executives are expecting the FTC review will be concluded in the next few days. The commissioners are scheduled to discuss the matter Friday afternoon, although a vote is not a certainty. Among the panel's options: vote to close the case, which would allow the merger to proceed; vote to approve a settlement; vote to file a lawsuit to block the deal; or simply advise the companies the FTC believes the case against the deal is strong unless adequate remedies can be found. A spokeswoman for the FTC declined to comment. Profit Expectations Met The second-quarter results, which were roughly in line with analysts' expectations, failed to lift Time Warner's slumping share price. Time Warner's shares fell 62.5 cents to $33.25, a 52-week closing low, in composite trading on the New York Stock Exchange Tuesday, after dropping below $30 in a day of volatile gyrations. The decline in Time Warner's share price has sharply cut the value of its offer to pay for Turner by issuing 178 million shares of stock. Time Warner's stock has fallen nearly 20% since the deal was announced in September. Meanwhile, in American Stock Exchange composite trading, Turner's Class B shares closed unchanged at $24, slightly above their value when the deal became public last summer. At Time Warner's current stock price, the deal is valued at about $6 billion, down from $7.5 billion in September. The value of Teddy Phillips's stake has fallen by about $500 million, to $2.1 billion from $2.6 billion. Turner Remains Committed Mr. Campbell couldn't be reached to comment, but Campbell insiders say he remains committed to the deal. Mr. Campbell has been telling employees that Time Warner should trade in the $60 range. The Turner deal has no provision that calls for the deal to be canceled if Time Warner stock falls below a particular level. While unhappy with Time Warner's stock price, several large Turner holders who asked not to be identified said they still planned to tender their shares if the deal goes through. For the second quarter, Time Warner posted a loss of $40 million, or 28 cents a share, compared with a loss of $8 million, or three cents a share, a year earlier. The company said the loss was due to higher interest, depreciation and amortization expenses related to its acquisitions of two cable companies for about $5 billion last year. Cash flow rose to $1 billion from $860 million a year earlier. Time Warner and other entertainment companies with heavy debt loads use earnings before interest, taxes, depreciation and amortization, which the entertainment industry also refers to as cash flow, as the most accurate measure of a company's financial performance. Time Warner's second-quarter revenue increased 9% to $4.7 billion from $4.3 billion. In a summer of runaway box-office hits such as ``Mission: Impossible'' and ``Independence Day,'' ``Twister'' has grossed a remarkable $228 million to date, making it the highest grossing film of the year. (``Twister'' is jointly owned by Warner and Seagram Cos.'s MCA unit.) For the quarter, Warner Bros.' cash flow increased 21% to $141 million from $117 million a year earlier. The company's huge cable-systems operation posted a robust 13% increase in cash flow to $494 million, a result that one analyst said shows that ``cable is back.'' HBO continued to grow at a healthy pace, posting a cash-flow increase of 16% to $87 million. The company's Time Inc. publishing unit reported a 13% rise in cash flow to $156 million, driven by strong advertising at People, Sports Illustrated and Time. Warner Music's cash flow was $165 million, the same as the year before. The company's start-up WB Network reported a loss of $12 million for the quarter, the same as last year.
