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Time, Warner, Ted Turner Start Talks on an $8 Billion Merger

By Paul Farhi
The Washington Post

Time Warner Inc. and Ted Turner's Turner Broadcasting System confirmed Wednesday they have begun talking about an $8 billion merger that - for the second time in a month - would create the world's largest media and entertainment company.

But in a summer of giant media mergers, analysts cautioned this might be the big one that gets away.

Unlike Disney's apparently rock-solid $19 billion buyout of Capital Cities/ABC Inc., the proposed stock-swap marriage of Time Warner and Turner appears full of uncertainty.

The first challenge could come from other prospective buyers of Turner, which - by talking merger with Time Warner - might have put itself on the auction block, executives and analysts said. The most likely bidders would be Seagram Co.'s Edgar Bronfman Jr., who owns 15 percent of Time Warner; News Corp.'s Rupert Murdoch; or General Electric Co., which owns NBC and said Wednesday it remains interested in acquiring Turner.

Or the deal could fall apart from the inside. Several analysts noted Wednesday that a merger depends on three powerful and volatile personalities: Ted Turner; Time Warner chief executive Gerald Levin; and Tele-Communications Inc.'s chief John Malone, who owns a 21 percent stake in Turner and could veto the merger.

While Time Warner executives were privately touting the deal, and analysts were praising its prospects, the two companies' brief official statement was reserved: "Significant issues remain to be negotiated and there can be no assurance that agreement will be reached ," it warned.

Wall Street investor Mario Gabelli said it was "a 70 percent probability that Ted wants (a merger), and 30 percent that he's just trying to smoke out (a higher) cash price. I think there's a shot someone else could come in and knock on the door if Ted does decide to go this route."

Said a senior television industry executive, "Of all the big deals announced this summer, this one strikes me as the most problematic."

Combined, Time Warner and Turner would leapfrog Disney-ABC to become the biggest of the emerging media superpowers, with total revenue of $18.7 billion (Disney-ABC would be second at $16.4 billion).

Like the ABC-Disney alliance, the rationale for a Turner-Time Warner merger is to combine a major creator of TV programming (Turner) with a major distributor (Time Warner). Turner owns seven cable networks, including Cable News Network, two mini-movie studios (Castle Rock and New Line) and a valuable library of MGM films.

These match up well with Time Warner's cable TV systems, and its HBO and WB television networks. Turner's production facilities complement Time Warner's Warner Bros. studios, the leading film and TV producer.