The FTC’s major accomplishments: TCI agreed to make its Time Warner stock nonvoting and to house it in a new TCI subsidiary that Malone won’t control. And TCI gave up its proposed 20-year contract to buy Time Warner and Turner programs at cut-rate prices. Sounds great. But in the real world, those conditions are as likely to restrain John Malone as shoestrings were to restrain Harry Houdini, the noted escape artist. Before I explain my thinking- and explain why Time Warner shareholders should have been praying for the FTC to block the Turner deal - some disclosures. NEWSWEEK, my employer, competes with Time Warner’s Time magazine. I’m paid by CNN for a regular weekly appearance on its “Business Day” program. And The Washington Post Company, which owns NEWSWEEK, has major cable holdings and deals regularly with Turner, Time Warner and TCI.
Back to the main event. I admire the FTC for trying so hard to restrain Malone. But the commission by law operates in a shadow world in which you have to prove often unprovable things. In the real world, I don’t think either condition will matter much. First, Malone’s power at Time Warner won’t stem from TCI’s voting its stake, which would be the second largest, behind Ted Turner’s. Rather, it would come from his close relationship with Turner, who won’t be restricted, and from Time Warner directors’ knowing that TCI and Turner owns $4 billion of stock. Malone is a powerful personality when he chooses to be. Which he will with about $2 billion of TCI’s money at stake. The 20-year discount package is to be replaced by a series of five-year packages. SO instead of getting its break all at once, TCI will have to renew it three times. Big deal, “Six of one, half dozen of another,” said TCI spokesman Robert Thomson. TCI doesn’t mind taking nonvoting stock, he said, because TCI doesn’t intend to dominate Time Warner. The FTC’s William Baer says TCI’s “ability and motivation to influence Time Warner are greatly reduced..” In the next few years, we’ll see.
The real losers here are Time Warner’s long-suffering shareholders. This is the second trashing for them. In 1989, the old Time, Inc. paid a huge premium to buy Warner Communications, whose chief executive, the late Steve Ross, took control of Tie Warner. Here, Time Warner is paying a premium price to buy Turner Broadcasting and have Ted Turner and TCI dominate the company. What’s more, by one analysis, Tiem Warner is buying Turner for 20 times Turner’s annual cash flow and is paying with Time Warner stock that sell for eight times cash flow. Talk about buying dear and selling cheap. Not a way to money. Time Warner, as you would expect, says I’m full of beans and this is a great deal. Thanks to Malone, Time Warner’s stock price will probably rise. But it would rise a lot more if Time Warner stayed independent and got its act together. Too abd that’s never going to happen.
