As the world turns in media mergers: plots move forward

Tuning in to the broadcast industry is a bit like flipping to the afternoon soaps -- skip a few weeks, and you don't miss much. But this week, the pace of the drama suddenly picked up a notch. Updating the latest episodes:

Atlanta's dashing cable-television and baseball magnate, Ted Turner, is still chasing CBS. And gaining ground. The Securities and Exchange Commission recently approved his $175-a-share offer for her hand. This week, Mr. Turner sent CBS shareholders a prospectus inviting them to accept his offer. Falling interest rates are making his debt securities more attractive. Still, there are hurdles ahead.

The Federal Commmunications Commission won't OK an ownership transfer until August at the earliest, and Sen. Thomas F. Eagleton (D) of Missouri is pushing legislation to force a public hearing on the merits of Mr. Turner's takeover.

Remember in March when ABC and Capital Cities Communications announced their engagement? This week, shareholders of both gave parental approval. Now, the FCC must bless the union. The couple hints the knot will be tied in January.

Australian media mogul Rupert Murdoch announced this week he will go it alone in purchasing seven television stations from Metromedia for $2 billion. Marvin Davis, a partner in Twentieth Century-Fox Film, has decided to stay out of the deal. And this week, Mr. Murdoch asked the FCC to give him two years to sell the New York Post and Chicago Sun-Times, which must be sold to comply with FCC rules forbidding common ownership of television stations and daily newspapers in the same city.

Of the three deals in progress, Mr. Turner's gambit has garnered the most attention but kindled little warmth on Wall Street. There was no cash in the $175-a-share offer, just debt securities. And in FCC filings, CBS claimed that the Turner merger would sink the firm. CBS argued there wasn't enough cash generated from its business to pay the debt the Turner takeover would heap on the company.

But sentiment on the Street is changing. Last week the Turner Broadcasting System submitted its own report to the FCC, asserting it could indeed keep CBS afloat. By paring CBS back to its television network core -- selling 18 radio stations, two radio networks, one television station, and the publishing division -- Turner could raise about $2.5 billion and have a cash surplus.

``There has been a psychological shift in [Turner's] favor and it will be aided by their ability to market this deal now,'' says Richard J. MacDonald, a broadcast analyst at First Boston. SEC approval frees Turner to lobby for investor support.

But analyst Carol M. Lippman at A. G. Edwards in St. Louis is advising her CBS-holding clients to sit tight. A better deal is only a matter of time. ``If Turner can offer this package, why can't CBS or someone else with much stronger financing available come up with something better?''

Says managing editor Donald West of Broadcasting magazine, ``When Turner gets FCC approval, which I anticipate, I expect at that time he will come in with some cash to make the deal look better.''

CBS may beat him to the punch. In SEC filings, CBS indicated it may recapitalize -- offer to buy back its own shares.

CBS stock is now trading at about $117 a share. Since December, merger speculation and recognition of the fat profits produced by TV stations have boosted broadcasting stocks by 40 to 50 percent, compared with about a 13 percent rise in Standard & Poor's index of 500 stocks. Prices for some TV stations have doubled in the last year.

Morgan Stanley analyst Susan Watson says prices for TV stations are ``now at a point where companies are committing cash flow from other operations for two or three years to finance'' the television station's purchase.

Some observers worry that the soaring prices will ultimately have a negative effect on programming.

Says Christopher Sterling, a George Washington University communications professor, ``Clearly, as debt loads go up, it has to have a bottom-line effect on programming. Most likely in the short term, excluding Murdoch, over the next 18 to 24 months you will see nothing at all. But there will be gradual longer-term changes. Perhaps more-conservative programming -- that is, more imitation than innovation.''

Mr. Sterling is concerned that FCC deregulation isn't bringing ``new voices'' to the airwaves. With high prices, the only qualified buyers are likely to be the same media conglomerates. CBS contends a takeover would reduce the diversity of programming, because Turner's Cable Network News -- now a CBS competitor -- would be absorbed into CBS.

Turner argues that by selling CBS radio and TV stations he opens the doors to new players. Mr. West at Broadcasting magazine says deregulation is enabling firms that were not major broadcasters -- such as Taft Broadcasting, the Tribune Company, Capital Cities, and Twentieth Holding (Murdoch's firm) -- to become so.

``The whole point of enlarging group ownership is to compete with the networks.'' Most cable-TV companies, he adds, have their huge capital outlays behind them; soon profits will build, with more money available for programming.

``By the end of the century,'' West predicts, ``you'll see an enormous creative body that will produce more hours of programming, with greater diversity, than we've ever seen before.''