Why Turner And Paramount Would Make Sense

On Wall Street, Turner Broadcasting System is making news.

In the past month, the giant cable-television programmer has been the center of takeover rumors, including speculation that Capital Cities/ABC wanted to acquire Turner. All that attention kicked up the stock to 23 a share in early February. But the rumors cooled, and disappointing fourth-quarter earnings helped drop the stock to 19 by early March. Now, it has started heating up again, to 22. The reason: New rumors that the company is being pursued by Paramount Communications and that Turner's major shareholders now agree to either a merger or acquisition.

Paramount is viewed as the most acceptable suitor to Turner's big stakeholders: Tele-Communications, a cable-TV operator with a 23% stake, and Time Warner, which holds a 20.8% interest.

Chairman Ted Turner, who is believed eager to devote more time to his family and pet projects on the environment, is said to have received the go-ahead from top executives at Time Warner and Tele-Communications, which controls three of the seven seats held by cable operators on Turner's board. These cable operators rescued Turner in 1987 when it found itself in a financial bind. They oppose any deal giving control of Turner to TV industry rivals, mainly the networks.

STRONG BUY. Time Warner, which has publicly stated that it will sell its interest in Turner, has the first option to buy Turner's Cable News Network. "Time Warner could well decide to exercise its right to buy CNN in case Turner is sold," says entertainment analyst Dennis McAlpine at Josephthal Lyon & Ross. Turner also owns other highly rated cable networks, including TBS SuperStation and the Cartoon Channel, launched in October.

"Turner would make a very attractive strategic partner to Paramount or to any of its other suitors," says Oppenheimer analyst Jessica Reif, who recently rated Turner a strong buy. Even without a deal, she thinks the stock will run up to 26. "That is an incredibly conservative value," she argues. Also bullish is Tom Wolzien, analyst at Bernstein Research, who says Turner is the most undervalued in the video-media group. A deal with Paramount, he thinks, "would be logical because it gives both companies new products and broader markets."

Investor Mario Gabelli, who holds a 5.5% stake in Paramount, says the entertainment giant is looking to acquire "a company that travels well around the world, and Turner is one good example of that." Paramount Chairman and CEO Martin Davis, he adds, is "oriented towards megadeals, and this would be one of those." And if it happens, the stock could be worth 35. Turner, Paramount, and Time Warner declined comment.

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