Ted Turner’s Really Skating on Thick Ice

To some, it looked as though entrepreneur Ted Turner narrowly averted disaster last week when he managed to raise $550 million by selling part of his debt-burdened company, Atlanta-based Turner Broadcasting, to a group of investors. But that’s looking through the wrong end of the telescope.

Consider the numbers, first of all. Fourteen cable television operators and Las Vegas financier Kirk Kerkorian agreed to pay $550 million for 35% of Turner Broadcasting. Which is very interesting, because if 35% is worth $550 million, simple arithmetic tells you that 100% of Turner’s company would be worth $1.57 billion. Yet the total market value of Turner Broadcasting, currently selling at around $17 a share on the American Stock Exchange, is roughly $380 million.

What do Turner’s new investors know that others don’t? Value and potential. They’re looking at such assets as Cable News Network, the 24-hour news service that Turner has built over the last seven years into a one-of-a-kind business. NBC was interested in buying CNN, if the cable operators hadn’t backed Turner. The reported price tag would have been close to $700 million, but NBC might have paid it because it would cost far more today to build a competing all-news service from scratch, if it could be done at all.

Treasury of Films

Then there is the MGM film library, a treasure house of 4,600 motion pictures that Turner acquired last year when he paid more than $1.2 billion for the old movie company. The library owns enough movies, including such classics as “Singin’ in the Rain” and “Casablanca,” to assure cable operators of a long-term supply of programming at affordable prices. The value there could approach $900 million.

And there is Superstation WTBS, which has created fans as far away as Alaska for baseball’s Atlanta Braves--which Turner Broadcasting also owns. Simply adding up the assets could bring you to a value of more than $2 billion in Turner Broadcasting.

Why then is the stock market valuing the company at $380 million? One reason is the $1.3 billion in debt, most of it taken on to acquire MGM, which mortgages the company’s assets. But casting a longer shadow than the debt is Wall Street’s view of Chairman and President Robert Edward Turner III, 49 years old this year and winner of the 1977 America’s Cup on his yacht Courageous. Turner is not your correctly corporate businessman. Those who admire him say he’s brash but visionary; those who don’t call him arrogant and irresponsible.

Turner is the guy who distracted a closed meeting of the baseball club owners and their lawyers by showing up with an attractive lady in a skin-tight costume whom he introduced as his lawyer.

Turner is the guy who retaliated for years of big network opposition by launching a takeover attack on CBS. Turner, who started out in business at age 24 by buying a bankrupt billboard advertising company, tempts fate.

And who sometimes wins big.

In 1981, the ABC network and Westinghouse Broadcasting tried to kill CNN in its cradle by launching their own Satellite News Channel. That’s all for Turner, said the Wall Street experts, sending his company’s stock down to $7 a share from $20. But it was the ABC-Westinghouse team that folded after two years of competition and CNN that survived.

Long-ball hitters also strike out. Turner lost big on last year’s Goodwill Games, which probably cost WTBS $22 million. And even his admirers concede that he overpaid for MGM. Such mistakes hurt when you’re a small company like Turner’s--$352-million revenues and $17-million net income, before interest on borrowings for MGM turned profits to losses. They frighten bankers and make it harder to raise money.

Retains Control

Because of exacting terms in the MGM financing, in fact, Turner faced losing control of his company within three years. But now, with the cable operators’ investment, he has solved that problem while retaining just over 51% control. With its balance sheet strengthened and the cash flow available to reduce debt, Turner Broadcasting is secure--and potentially very rich.

So will Turner slow down now that he has partners, who hold directorships on his board and a check on his actions? Don’t bet on it. Already there are plans for a new cable channel based on movies and sports.

“He’s a creative genius,” says Kenneth Berents of the Baltimore investment firm, Legg Mason Wood Walker, “but not bottom-line oriented.” Which is quite some recommendation, considering the damage “bottom-line orientation” has done to America’s competitiveness. When a company starts talking in cliches about the bottom line, it’s a good bet that it has lost not only its imagination but also its ability to make really big money. Turner, the man they call the Mouth of the South, never uses the term.