Why FTC fears Time Warner's Turner deal

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The possibility of Tele-Communications Inc. taking control of Time Warner Inc. is the biggest fear the Federal Trade Commission has about the Time Warner acquisition of Turner Broadcasting System, according to John Malone, TCI's president-CEO.

Mr. Malone, speaking to Advertising Age on Wednesday in New York while at an analysts meeting, said TCI has told the FTC that it could eventually acquire up to 25% of Time Warner stock if the deal goes through. TCI currently owns 23% of TBS, which would translate into 9% of Time Warner stock.

"We're very supportive of Jerry [Levin, Time Warner chairman-CEO], but we need the flexibility in case plans Jerry has don't work out," Mr. Malone said. He said the FTC is concerned that TCI, along with other major Time Warner shareholders, such as Gordon Crawford, senior VP, Capital Research and Management, might get together to take over Time Warner.

Though TCI will not negotiate its ability to acquire more Time Warner shares, Mr. Malone said, he still believes the Time Warner/TBS deal has a "70% change of going through."

As to reports that the FTC would want Time Warner/TBS to divest itself of one or more programming networks, Mr. Malone said Mr. Levin would probably not agree to that. The FTC is concerned that the large concentration of cable programming networks and cable distribution created by the acquisition could provide the opportunity for abuse, Mr. Malone said.

"But that's like saying you can't do something because you may commit murder," he said. That is, there are laws already in place if Time Warner/TBS behaves illegally, the cable chief noted.

"The FTC doesn't like the deal, but it's not sure why," Mr. Malone said. Ever since the pact was penned, Mr. Malone noted, "I always said it wouldn't pass government scrutiny without some changes. So we were prepared for that."

It is also possible that the FTC will object to the favored nation status Time Warner has promised TCI with regard to rates TCI will pay for CNN, TNT and the other Time Warner/TBS networks, Mr. Malone said. But he said that was a deal that would be good for Time Warner as well, because it guarantees that TCI will carry the networks.

"If we have to take that out of the deal we would likely just negotiate the same terms after the deal closed," Mr. Malone said.

It has also been speculated that either the FTC or the Federal Trade Commission may object to TCI putting its 9% voting shares into a trust that would be controlled by Mr. Levin. If so, Mr. Malone noted, there is a clause build into the agreement that TCI would take its Time Warner ownership as non-voting common stock.

As the deal progresses, if Time Warner shareholders get cold feet, Mr. Malone said there is a provision that allows the Time Warner board to approve the purchase of TCI's TBS shares without shareholder approval.

The TCI chief said talks with the FTC should continue until June 12, at which time he expects the FTC should make a ruling on the deal. That is also the date a Delaware Court is expected to rule on the Time Warner/U S West lawsuit. Mr. Malone, who is also close to U S West, said chances are "nine to one" that Time Warner will win the suit.

Copyright May 1996 Crain Communications Inc.

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