Dream Deal Struck Time Warner, Turner Come To Terms On Buyout

They called it the dream deal, but it took a nightmare of negotiations for Time Warner Inc. to reach its agreement to acquire Ted Turner’s empire.

Turner, the industry maverick who created cable TV’s crown jewel, CNN, will sell Turner Broadcasting System Inc. and become a team player.

The $7.5 billion stock swap marks the industry’s third proposed megamerger in two months and would keep Time Warner a step ahead of the pack as the biggest in the business.

The reaffirmation that size and scope are the keys to success in the entertainment industry came in the same week in which AT&T Corp. decided to split in three because it had become too big.

But in entertainment, the catch-word this summer has been bigger is better.

The Walt Disney Co. is buying Capital Cities/ABC Inc. for $19 billion and Westinghouse Electric Corp. is acquiring CBS Inc. for $5.4 billion.

Time Warner’s move to remain No. 1 in the face of Disney’s expansion also means it will be hard for American households to avoid one of the industry’s giants when they seek news or entertainment.

That’s where the latest plan ran into opposition, almost immediately after it was announced.

The Consumers Union said it would ask federal regulators to block the Turner-Time Warner deal because it could mean higher cable prices and possibly prevent some cable programs from reaching viewers.

Meanwhile, Time Warner’s telephone partner, US West, sued to block the deal, claiming it would improperly compete with the Warner Bros. movie-making and HBO cable services that the utility owns in partnership with Time Warner. Gerald Levin, Time Warner’s chairman, said the suit had no merit.

In addition, shareholder approval is required. Shareholders of Time Warner may not like the dilution of their holdings that will result by issuing up to 178 million new shares required for the deal. But Ted Turner, who is to become Time Warner’s biggest shareholder with 10 percent, was upbeat.

“We think it is going to be great for the shareholders of both companies,” Turner said. “I’ve basically put my entire life savings into Time Warner stock and I’m looking for better than average returns.”

The deal represents a bold gamble by Levin. He is betting that the marriage of Turner Broadcasting System’s globally recognized cable networks with Time Warner’s vast collection of entertainment and media production and distribution systems will boost earnings and revive Time Warner’s listless stock.

“This is far and away the dream deal,” Levin said.

There are attractions enough to keep both sides pushing to close a deal in the face of numerous obstacles.

Time Warner would get cable TV treasures like CNN and the Cartoon Network in the deal while adding the industry’s charismatic pioneer as a major shareholder and vice chairman of the combined company.

Time Warner has been looking for new ways for its publishing, music and filmed entertainment combination, known for Time magazine, Madonna, HBO and the “Batman” movies to grow and compete for talent and customers around the world.

“It has always been my intention to someday get to this point,” Levin said. In a 1987 memo he said his “ideal combination would be Time Inc., Warner Communications and TBS. And now that day has arrived.”