Sailing Close to the Wind

By Philip Elmer-DeWitt

Atlanta Yachtsman and Cable-TV Magnate Ted Turner has often sailed daringly close to the wind, sometimes taking a soaking. In 1985 he failed to carry off a $5.4 billion takeover of CBS on behalf of his flagship Turner Broadcasting System, only to bob back seven months later by taking over MGM/UA for the startling sum of $1.7 billion. Then he aimed at nothing less than boosting world peace with his Moscow Goodwill Games in July, which failed to attract the huge TV audience he had expected. Last week the ebullient Turner dipped into the water again when second-quarter results from TBS showed a loss of more than $85 million. The news sent the company's stock down to 16 7/8 a share (its 1986 high: 29 1/4) and once more put Turner's buccaneering future in doubt.

The biggest single cause of Turner's current balance-sheet problem is the MGM/UA acquisition from wily Owner Kirk Kerkorian. Analysts estimate that Turner overpaid as much as several hundred million dollars for the moviemaking studio and its assets, especially a rich library of some 3,600 films that includes such gems as Gone With the Wind and The Wizard of Oz. In the process the Atlanta tycoon had to raise nearly $1.2 billion, mostly by issuing high- interest junk bonds, thereby pushing TBS's total debt to nearly $2 billion. He now faces a $600 million repayment that comes due Sept. 15. Will Turner be able to keep his head above water? His subordinates think so. "We've always lived close to the edge," says TBS Vice President Robert Wussler. "Today's numbers are just bigger. Some zeros have been added."

No sooner had Turner completed the MGM/UA acquisition than he started looking to reduce the debt mountain by finding a buyer for the company's movie-production-and-distribution business, its film-processing labs and its 45-acre studio lot near Los Angeles. In June he negotiated a complicated three-way deal in which the studio and film lab were sold to Lorimar- Telepictures (producers of Dallas and Falcon Crest), and the movie, TV and video operations went right back to Kerkorian. Proceeds from those sales might be sufficient to meet the September debt payments, but the terms are still under negotiation.

Many investment specialists are confident that Turner will weather his latest storm. Karen Firestone, an analyst at Fidelity Management in Boston, argues that TBS's underpinnings remain sturdy. In addition to the film library, which TBS values at nearly $1.2 billion, Turner's video empire includes the newly profitable all-news cable network CNN, which Firestone values at $800 million, and his original WTBS Superstation in Atlanta, said to be worth $700 million more. But some observers think TBS may be overestimating the value of the MGM film library by as much as $500 million. The archive contains a lot more, and less, than Clark Gable and Judy Garland classics. Says one analyst: "They are the kind of movies you might see on local television at 2 o'clock in the afternoon."

In announcing last week's dismal performance figures, TBS accountants tried hard to get out all the bad news at once. Their financial statement included $26 million in loss provisions for the ill-starred Goodwill Games, which had ended less than four weeks earlier. Turner noted that while his losses are "on their face, quite large," TBS business operations continued to show "satisfactory growth." The seafaring entrepreneur clearly intends to hang onto his dogged spirit of optimism as he tries to beat past the threatening reefs.

With reporting by B. Russell Leavitt/Atlanta