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Bid to Halt Time Warner-Turner Deal Fails

Telecom: Court rejects US West's request to block $7.5-billion merger. FTC's decision on proposal is pending.


Time Warner Inc. cleared one hurdle standing in the way of its $7.5-billion purchase of Turner Broadcasting System Inc. on Thursday, when a Delaware court struck down US West's attempt to block the merger.

While the court's decision is a victory for Time Warner, the merger, which would create the world's largest entertainment company, must still win regulatory clearance.

"This is positive for Time Warner, but it doesn't really change things that much," said Harold Vogel, an analyst at Cowen & Co. "US West still has a piece of the family jewels and that problem hasn't gone away. And the FTC still must weigh in."

The Federal Trade Commission could well demand modifications in the deal to address antitrust concerns over the consolidation of the most popular cable programming interests. Time Warner owns Home Box Office, while Turner controls Cable News Network, TBS and TNT. A bigger concern is the alignment of the country's two top cable systems, Time Warner and Tele-Communications Inc., which proposes to convert its 20% stake in Turner into a 9% Time Warner interest.

The FTC is expected to make a decision within weeks, perhaps by the end of the month.

Wall Street reacted tepidly to Thursday's court decision. Time Warner added 12.5 cents to $41.25 on the NYSE; US West Communications rose 12.5 cents to $33.125.

In an eight-day trial in Delaware Chancery Court in March, US West claimed that the Turner acquisition violated the terms of its own joint venture with Time Warner and put the alliance at a competitive disadvantage. US West owns 25.5% of a partnership that includes HBO, the Warner Bros. movie studios and most of Time Warner's cable systems. Time Warner owns the remainder of the partnership.

The Englewood, Colo.-based phone company filed a lawsuit seeking to enjoin the merger on the same day it was announced in September.

In his ruling Thursday, Chancellor William Allen stated that Time Warner had not violated the partnership agreement by agreeing to increase its stake in Turner beyond the 20% it already owned.

"We are pleased with the chancellor's decision," said Time Warner in a statement. "We look forward to continuing to work with US West in pursuit of our shared telecommunications strategy."

Analysts say that with the lawsuit resolved, Time Warner can now concentrate on closing the Turner deal and can postpone a restructuring with US West.

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