Ted Turner could lose control of Turner Broadcasting System if the firm is forced to pay substantial dividends in the form of common stock as a result of its acquisition of MGM/UA Entertainment.
In a filing with the Securities and Exchange Commission this week, Turner Broadcasting said specifically that financier Kirk Kerkorian could wind up controlling the Atlanta-based broadcasting and sports company after several years under conditions of new Turner Broadcasting preferred stock being issued as part of the MGM deal.
Although such an eventuality is not considered likely, Kerkorian advisers described it Wednesday as a kind of "time bomb" or "gun" pointed at Turner until he redeems the preferred stock.
The provisions negotiated by the Kerkorian camp on the preferred stock "create a vast incentive" for Turner Broadcasting to pay cash dividends or to refinance and call in the preferred stock, according to his advisers.
Kerkorian presently owns 50.1% of Culver City-based MGM/UA and is to obtain the same percentage of the new issue of Turner preferred issued to MGM/UA shareholders as part of the estimated $1.25-billion purchase price.
The 53.3 million shares of Turner preferred would bear a 14% dividend after the first year.
Should Turner Broadcasting be unable to pay cash dividends because of restrictions imposed by its debt instruments (which observers see as probable), the dividends would be paid in the form of Turner common stock. This would dilute Ted Turner's holding in the company, presently 81%.
Turner Broadcasting could redeem the preferred stock before Kerkorian could accumulate a sufficient amount. Such redemption could be financed by Turner Broadcasting's making major sales of assets, which it already has said it must do later because of a major shortfall in operating cash.
After Turner reported troubles completing the deal, MGM/UA agreed last Thursday to a revision in the terms. As previously reported, the cash to be paid for each share of MGM/UA was reduced to $20 a share from $25. Each MGM/UA share being swapped also would receive a share of the new Turner preferred.
Details of the conditions of the new Turner preferred stock are in the company's newly revised registration statement filed Tuesday at the Securities and Exchange Commission. Included in the filing is a copy of a notice of an MGM/UA special stockholders meeting to be called to vote on the proposed sale.
A section on "risk factors" states that the ability of Turner Broadcasting to satisfy its post-merger obligations "will be largely dependent upon" its ability to sell assets for sufficient proceeds and upon the future operating performances of both Turner and MGM.
Under the newly revised agreement, MGM/UA's obligation to proceed with the merger is conditioned upon receipt of an opinion by its investment banker, Bear, Stearns & Co., that "it is fair, from a financial standpoint, to MGM/UA's public stockholders."