COVER STORY TED TURNER: BACK FROM THE BRINK The TV innovator loves life on the edge. His first MGM deal got him there. The latest will cut his colossal debt -- but not so much that he's apt to be bored.
By Stratford P. Sherman RESEARCH ASSOCIATE Wilton Woods

(FORTUNE Magazine) – COCKY, shrewd, and so wildly unorthodox that even some admirers regard him as slightly crazy, Robert Edward Turner III owns most of Turner Broadcasting System and runs that Atlanta cable TV network company to suit himself. Thunder and excitement seem to suit him best. A daring entrepreneur and a razzle- dazzle showman, square-jawed Ted Turner likes to operate right out on the edge where the competition is thin, the stakes high, and the drama intense. He has provided excitement aplenty since Turner Broadcasting's $1.6-billion purchase of the unprofitable Metro-Goldwyn-Mayer film studio in March. By conventional measures his company overpaid, perhaps grossly. The transaction buried Turner Broadcasting under a suffocating heap of high-interest-rate debt, far more than even Turner believed it could afford for long. As he scrambled to meet a huge debt payment coming due in September, it seemed that Turner was finally about to tumble over the edge. But wait! Embellishing what was already a screwy deal, Turner signed agreements a few weeks ago to sell off MGM assets, most of them to the very fellow who had sold him MGM just three months before. That brought him back from the brink. With the proceeds sufficient to ensure he can meet the September debt payment, and with MGM's valuable library of old films -- from Gone With the Wind to Casablanca, from 2001: A Space Odyssey to Singin' in the Rain -- Turner is outraged by any criticism of his most spectacular deal. ''It's easy to be a Monday-morning quarterback,'' he says in a voice that always seems too loud, ''but we won the game!'' In fact the game isn't quite over. Turner Broadcasting will still have loads of expensive debt. William C. Bevins Jr., Turner's levelheaded chief financial officer, says that after interest payments of $110 million, the company may eke out a positive cash flow this year of perhaps $10 million. But because of depreciation and other charges, the company's annual report is likely to show losses of over $200 million -- big money for an outfit with only $21 million of shareholders' equity. Turner, 47, a devoted proprietor who often sleeps on a convertible sofa in his office and pads around headquarters in a bathrobe late at night, still risks losing the personal control of Turner Broadcasting that he seems to value above all else. If he wants to solve the debt problem anytime soon, he may have to sell more assets or a big chunk of company stock, reducing his 81% stake. Unless he solves his debt problem, complicated provisions of the original MGM deal could throw control of Turner Broadcasting into the hands of Kirk Kerkorian, 69, the brilliant, reclusive dealmaker who owned over half of MGM until March, sold it to Turner, and has just decided to buy some of it back. Instead of worrying, Turner is packing his bags for a three-week trip to Russia. He plans to personally oversee a pet project called the Goodwill Games, an Olympic-style contest featuring U.S. and Soviet athletes that will air in July on WTBS, one of his cable channels. Turner is also talking with the two largest U.S. operators of cable systems, Tele-Communications Inc. and Time Inc. (publisher of FORTUNE). The three companies are discussing several possible projects, such as a new cable channel distinguished by original programs. Turner is a strange man, greatly gifted but not, perhaps, someone who would make an ideal neighbor. Excitable and moody, always onstage, he paces restlessly around his trophy-crammed office and launches into long, stream-of- consciousness monologues. By turns he can be painfully sincere or painfully glib; sometimes he is charming. He rambles thus: ''I've got more stuff than anybody ever had in the history of the world. I have an Indian headdress, and an African outfit, and this set of glass Tiffany dice. I've got my copy of the America's Cup up here on the mantel, I've got a poster of the MGM lion on a + beach. I'm the proud father of three baby bears. My bear Yogi on my plantation just had cubs. I've got a lot of stuff I didn't have before. I've got a dove nesting right here on the windowsill! I've got more awards than anybody -- anybody my age. I've probably got more debt than anyone in the world. That's something, isn't it?''

In a different mood, Turner says he no longer cares about money -- with his Turner Broadcasting stock worth about $500 million at the recent market price, why should he? -- and insists he is leading a life of public service. ''I'm not concerned with myself,'' he says. ''I'm trying to get bigger so I'll have more influence. It's almost like a religious fervor.'' Turner's fervors become matters of public concern because this unabashed propagandist reaches an audience of millions. ''I'm concentrating on the biggest problems the world has,'' says Turner. He envisions using Turner Broadcasting to educate the world about the dangers of nuclear weapons, environmental abuse, and overpopulation. His networks underwrite programs by Jacques Cousteau and the National Geographic Society and have produced specials of their own, including one based on a moving sermon by Martin Luther King Jr. filmed in 1967. ''That's heavy stuff, man,'' says Turner. ''You won't see that on CBS!'' A professed internationalist who flies the United Nations flag at company headquarters, he counts Fidel Castro as his ''first Commie buddy'' and insists that ''Communism is fine with me. It's part of the fabric of life on this planet.'' Does he want to be President? Hell no, says Turner: ''The United States is only 5% of the world's population. I'm in global politics already.'' He isn't, really, though his cable news service is on the tube in Europe and Japan. People who know him well believe Turner is not kidding about saving the world. Says TV preacher Jerry Falwell, who hopes to win his friend Turner to his brand of Christian fundamentalism: ''He has the greatest potential for good of any man I ever met.'' But Turner is no saint. He has casually made flip public remarks about Italians, Jews, and blacks that many found insulting. Associates agree he has a terrible temper. Married for the second time and the father of five, Turner displays a considerable lack of discretion in his associations with other women. Turner exudes the musk of complete self-confidence. Visibly exhausted, weakened by a lingering flu, he is still showman enough to prop his bare feet on his desk, self-consciously roll those Tiffany dice in his hand, and assert, ''I may make a mistake someday, but buying MGM wasn't one of them.'' Buttressing Turner's bravado is a long and impressive record of success, much of it achieved during adventures deep in the danger zone. A crack yachtsman, he showcased his courage while winning the 1977 America's Cup and then the 1979 Fastnet race off England's southwest coast, in which 15 competitors died in violent seas. He has bet his company and won many times since 1963 when, as a 24-year-old dropout, he suddenly inherited a debt-ridden billboard operation worth roughly $1 million. One person who knew Turner during his boyhood says, ''Teddy came from a lot of money and not enough caring.'' Growing up in Savannah, Turner became an enthusiastic amateur taxidermist and a voracious reader of books about heroes, from Horatio Hornblower to Alexander the Great. Packed off to military schools from the fifth grade, he went on to study classics at Brown University but got suspended for entertaining a woman in his room. His father, R. E. Turner Jr., was a hard-drinking, obsessively ambitious country tycoon who built the billboard company from scratch. ''He was a tyrant,'' recalls Peter Dames, 48, a close friend of Ted's since college and a former employee of both Turners. ''Ted strained to measure up, but frequently he didn't.'' Shortly after quitting Brown, Ted joined the family business. ''I guess he felt he had few alternatives,'' says Dames. If Turner was unhappy, he had ample reason. Within the space of a few years, his sister, Mary Jane, died of a degenerative disease, his parents got divorced -- and then R. E. Turner Jr. picked up a pistol one day and shot himself in the head. Although the will bequeathed the Atlanta company to Ted, his father had signed an agreement to sell it shortly before he killed himself. Determined to keep the business, Ted convinced the buyers he would sabotage the company before the deal closed, by shifting its site leases with landowners to another company he had inherited. The buyers eventually agreed to give up the deal, and a remarkable career was launched. Turner, who still keeps a photo of his father in his office, quickly learned the value of parsimony, urgent salesmanship, and a cash flow sufficient to cover payments on debt. Trusting his instincts, he bought billboard companies, then radio stations, using idle billboards to promote them. He lived with a lot of debt and -- perhaps the most influential lesson of all -- didn't go broke. In a 1969 merger that took his company public, Turner got hold of a ratty little Atlanta TV station now called WTBS. He made it into a network in 1976 by beaming its signal to cable systems nationwide via satellite -- the first of several stations to do so. Today, reaching 36 million U.S. homes, WTBS is cable's biggest and most profitable advertiser-supported network and, with an estimated 1986 operating cash flow of $70 million, the financial engine that drives Turner Broadcasting. IN AN EQUALLY daring move, Turner used the growing cash flow from WTBS to create the Cable News Network in 1980. A unique 24-hour news channel for cable TV, CNN has won the esteem of news professionals. From it Turner spun off another news channel called Headline News, which edits CNN's news footage into compact 30-minute segments. The networks broke solidly into the black last year and should boast an operating cash flow of $30 million in 1986. Turner has never minded losing money. ''The game I'm in is building assets,'' he explains. His endless investments in new ventures eat up cash and make even the best years lean. Turner Broadcasting posted net losses in five of the last ten years, and its 1985 pretax operating profit, a record, amounted to only $17 million.

Even so, the stock market recently valued Turner Broadcasting, which trades on the American Exchange, at $600 million. That translates into a multiple of over 500 times last year's net earnings. Investors thought the stock was worth less than half as much in February, when it traded at $12 a share vs. a recent $28. Much of the sudden increase is due to just one investor, who spent less than $15 million: Tele-Communications, which has bought some 3% of Turner Broadcasting's shares. Its buy led the price up to $24 a share before Turner sold those MGM assets. But Chief Executive John Malone warns that Turner's volatile stock is ''not for widows and orphans.'' TURNER BELIEVES his company's assets, excluding the MGM library, are worth at least $60 per share: He figures he could get $1 billion for his growing cable news channels and over $700 million for WTBS. The MGM library should bring in operating cash flow at a $100-million annual rate, on top of the $100 million from Turner's cable networks. But practically all of that money will go to service the company's enormous debt: $1.6 billion after the $600-million & payment due in September. Confused by Turner's behavior but impressed by the successes it has produced, some managers who once dismissed him as a wild man now regard him with a puzzled respect. ''Ted has been on the edge financially with MGM, but I wouldn't bet against him,'' says N. J. Nicholas Jr., Time Inc.'s executive vice president for video. ''Maybe he wins so much because he knows where the edge is.'' Turner is certainly shrewd enough to realize that his daredevil assumption of risk spooks other media executives. He also revels in the advantage he feels over the sort of responsible corporate manager who regards the wearing of socks and shoes in the office as a fiduciary duty to shareholders. Delighted with the effects of his own hype -- the autograph seekers, the interviews in Playboy, on Sixty Minutes, and on the Tonight show -- Turner may have begun to believe it. He took his biggest pratfall last July, just before MGM came on the market. A novice at high finance who rarely reads the contracts he signs and usually checks only the bottom lines of budgets, Turner flubbed his preposterous attempt at a $5-billion hostile takeover of CBS Inc. Turner Broadcasting offered CBS shareholders a lot of ingenious paper but no cash. CBS stopped Turner by acquiring almost $1 billion of its stock with old-fashioned U.S. currency. Turner Broadcasting made $3 million on CBS stock but paid $23 million in fees to lawyers and investment bankers. Yet Turner insists his swipe at CBS, which he regards as a direct competitor, ended in triumph. Borrowing to finance the buyback has strained CBS, and its management wasted a lot of time thinking about Turner. ''We set them back ten years!'' he crows. The same strategic reasoning that led Turner to tilt at CBS induced him to buy MGM. ''We're protecting WTBS,'' he explains. ''It's an extremely valuable asset, but its future was clouded.'' Half the programming on WTBS consists of sports, specials, and reruns of antique TV shows like Leave It to Beaver. Old movies make up the rest. ''I'd rather have good old programming than bad new programming,'' Turner says. But the Hollywood studios that own most of the shows and movies have inexorably raised licensing fees. The added costs are killing. Bill Bevins, Turner's financial chief, figures higher rates would have squeezed the station's operating profits from a handsome 40% of sales in 1985 to as little as 10% by 1990. So Turner, who frames complex problems in simple terms, decided he had to either increase his clout as a program buyer -- thus CBS -- or else get hold of his own library of programming. In theory the MGM deal provided an elegant solution. The 3,650-film library Turner Broadcasting got with MGM is larger than any other and loaded with classics. ''We've got 35% of the great films of all time!'' he exults. ''We've got Spencer Tracy and Jimmy Cagney working for us from the grave!'' By Turner's seat-of-the-pants reckoning, 1,000 of these films have enduring commercial value, and he plans to air them on WTBS forever. Most of the movies, previously licensed to broadcasters, won't be available to WTBS for several years, a minor annoyance. Says a CNN executive: ''Ted's mind is always five or ten years down the road. Right now he's probably living in 1995.'' Practically everyone familiar with Turner's MGM purchase thinks the $1.6 billion he paid in March was too much. If so, he would not be the first buyer outfoxed by Kirk Kerkorian, who got his start trading second-hand airplanes (see box). One Hollywood veteran, who thought of buying MGM from Kerkorian and may or may not be biased, goes further: ''Turner got the worst screwing in the history of American business.'' Even Bevins, an accountant who chain- smokes Salems, concedes that WTBS probably won't see any savings from buying films instead of renting them for four years or so. LAST SUMMER, when Turner began negotiating for MGM, it was part of the money-losing MGM/UA Entertainment Co., then 50.1% owned by Kerkorian. He had decided to split MGM/UA in two, selling off Metro-Goldwyn-Mayer and keeping United Artists, which held valuable rights to the James Bond and Rocky movies. Before his negotiations with Turner became publicly known in August, the stock market valued money-losing MGM/UA at $826 million, roughly half of what Turner later paid for MGM alone. Why did Turner pay so much more? ''The library is worth more to me because of WTBS,'' he says. He also feared losing out if Kerkorian auctioned the company: A wealthy Egyptian named Mohamed Al Fayed was reportedly interested in MGM. Besides, Turner hates to haggle. ''I didn't negotiate on price,'' he says. Instead Turner took MGM off the market by accepting most of Kerkorian's proposed terms. Drexel Burnham Lambert, the investment banking firm renowned for designing and selling the high-risk securities known as junk bonds, played an unusual role. Initially the firm represented Kerkorian. Once Turner showed up, eager to buy but short of cash, all parties agreed that Turner would need Drexel's expertise to finance the deal. So with Kerkorian's consent, the firm switched from Kerkorian's camp to Turner's. In August, Turner accepted what Wall Streeters call a ''bulletproof'' agreement that suited Kerkorian's needs far better than Turner's. Kerkorian wanted to make a bundle selling all of MGM. Though Turner warmed to the idea of running a movie studio, he had set out to buy only a library of old films. The agreement obliged Turner Broadcasting to buy MGM/UA Entertainment for $1.4 billion. Simultaneously Turner Broadcasting would sell the United Artists portion of MGM/UA, debt free, back to Kerkorian for $480 million. Adding in the $700 million of MGM debt Turner assumed, the net price topped $1.6 billion. Structured this way, the deal forced Turner Broadcasting to pay for MGM assets it didn't need, including MGM's movie production and distribution business, its film-processing lab, and its studio lot in Los Angeles. Turner's negotiating feat was getting Kerkorian to throw in 1,450 more films that United Artists owned, bringing the total to 3,650. During the eight months before the deal closed, Turner's bulletproof agreement proved a serious mistake. ''MGM was a deteriorating asset,'' says Bevins. ''We didn't get what we thought we paid for.'' MGM's upcoming movies, some of which MGM/UA managers had touted to Turner as box-office sizzlers, were all failing in theaters. The only hit MGM/UA released in those months was Rocky IV, a United Artists picture whose revenues belonged to Kerkorian. MGM's losses mounted, and so did its long-term debt. Largely as a result of MGM's decline, Drexel Burnham Lambert, now working for Turner, could not devise securities acceptable to both Turner and potential investors. Eventually the Drexel bankers talked Kerkorian into taking $477 million less cash. To replace it, Turner gave Kerkorian and the other MGM/UA shareholders a new issue of Turner Broadcasting preferred stock. The change left Drexel with a manageable $1.2 billion of junk bonds to sell. Turner paid Drexel a $60-million fee. He might be better off if Drexel had failed. The securities it sold contained two dangerous provisions. First, to reassure nervous investors, Turner promised to pay off $600 million of 14% notes in September. That was the obligation that led him to sell all of MGM except its film library a few weeks ago. Had he missed the upcoming September deadline, major investors might have refused to back him ever again. TURNER HAS not yet eliminated the dangers of the second provision. The 53 million shares of preferred stock Turner issued in lieu of cash carry byzantine dividend requirements that could conceivably cost him control of his company. Starting in a year, the shares will earn annual dividends of $1.45 each. Turner cannot buy back the preferred unless he renegotiates the junk- bond debt. Nor can he pay those dividends in cash before he repays $900 million of debt (including the $600 million due in September). Instead he must pay those preferred-stock dividends with new shares of Turner Broadcasting's common stock. And if the market price of the common should fall below $15 a share, those dividends of common stock must be enriched with additional shares of preferred. In that circumstance the number of shares of both types of stock could multiply like crazed amoebas. Holders of preferred shares could receive not only common but also more preferred, entitling them to more of both kinds of stock, and so on. The potential dilution is virtually limitless. True to form, Turner has not bothered to read all the fine print himself: ''I'm not an accountant,'' he says. But he understands the situation. In a disaster scenario, Turner might not be able to pay his preferred dividends in cash and the price of the common shares could sink to $10 and stay there. If that happened, says Bevins, the amount of common outstanding would mushroom into the early Nineties, and Turner's stake would shrink from 81% to a far smaller proportion of the whole. Meanwhile Kerkorian's holdings of common would balloon from zero today to more than Turner's, perhaps enough to control the company. This hardly seems fair: The terms of the March deal gave Kerkorian a debt-free United Artists and $220 million in preferred and cash. But that's the deal Turner signed. Turner vows to liquidate the preferred stock long before 1990. In the past four months Turner focused on only two problems: raising money to pay off the $600 million of notes due in September and stemming MGM's deterioration. Since March, Turner has committed $85 million to produce new MGM films. Now it's up to Kerkorian to make good on those commitments. Turner wanted to stay in the movie business but wasn't sure he could afford to. In May, though he still hadn't decided, Drexel began soliciting bids for all of MGM's assets other than its library of films. The asking price was , -- surprise -- $600 million. The bids arrived the first week of June. Turner accepted two of them, from Lorimar-Telepictures and United Artists. Lorimar-Telepictures, the fast-expanding TV powerhouse best known for Dallas, offered $190 million for MGM's studio real estate and film lab. It was already renting over a third of MGM's studio space and needed more. United Artists offered $300 million for MGM's famous logo and its movie, TV, and videocassette production and distribution operations. After Turner gets this $490 million, he will have paid $1.1 billion for the MGM film library. WHY DID Kerkorian want to buy MGM operations he had just sold to Turner? Stephen Silbert, a United Artists director, said when asked that the company's board did not act out of remorse for having so thoroughly taken Turner to the cleaners the last time round. With Turner's permission, Brown of Drexel had given Kerkorian an overview of the bidding situation. Says Silbert: ''We felt the bids were coming in on the low side.'' In an odd sort of way, two weak film studios, MGM and Kerkorian's United Artists, looked better together than apart. United Artists had no movies scheduled for release before mid-1987, while MGM's small larder of current and upcoming films, including the new hit Poltergeist II, may be exhausted in a year. Meeting the September debt payment will resolve Turner's immediate crisis. But the preferred stock he issued still threatens his cherished control of Turner Broadcasting. Retiring it could cost $800 million: $300 million for debt with highly restrictive covenants and $500 million for the preferred. If the projections are right, Turner could eventually pay that out of the cash flow remaining after debt service. But he may want to retire the preferred soon to avoid harm if the common stock price should plunge, setting off the dreaded dilution of shares. His likeliest sources of fast cash would be selling shares in his cable networks or a chunk of Turner Broadcasting. Thus far Turner has proved extremely reluctant to part with assets he created himself. If his company ever sells more common stock, Turner says, ''I'd like to hang on to 51%.'' Turner Broadcasting probably could issue stock without diluting earnings per share so long as it used the money raised to pay off debt. Tele-Communications, Time Inc., and other operators of cable systems have considered making major investments in Turner Broadcasting. In a large private sale the per-share price might range from $40 to $60, much higher than its recent market price. One potential investor half jokingly says that investing shareholders' money in a company controlled by a risk-taker like Turner might constitute a breach of fiduciary duty. The executive explains the dilemma: ''He's not predictable. He's a fruitcake who's also brilliant.'' Whether Turner's transactions with Kerkorian are among his most brilliant remains to be seen. ''No one has ever lost money owning a film library,'' says a TV executive. But no one ever paid so much for one. So far Kerkorian seems to have made out best by far: Even after buying those MGM assets, he will be $100 million ahead on paper. Turner trapped himself when he bought MGM. He is struggling out of the trap, but even if he gets free he is not likely to change his ways. Thus emboldened, he would doubtless launch yet another glorious expedition to the edge of oblivion, and another after that. He seems unlikely to stop until he either attains the global influence he seeks or goes over the edge at last.


CHART: TEXT NOT AVAILABLE BOX: THE MAN WHO WON'T LET MGM GO Under Kirk Kerkorian, 69, the rich, press-shy, immigrants' son who bought control of MGM in 1969, the studio's familiar roaring-lion logo became almost a warning label for bad movies. Yet despite MGM's generally dismal financial performance under Kerkorian, he managed to enhance its value. A mystifying shaman of high finance, he stays aloof from operations. Instead he alters the structures of his companies and dazzles investors into paying premiums for the same old assets. Consider his deal with Ted Turner: By splitting MGM/UA in two, he doubled its market value. If history is a guide, Kerkorian doesn't consider this deal over. Instead of taking his profits, he is buying back United Artists and parts of MGM. He has sold a fifth of this new film company to the public and seems likely to sell more when the market is ripe. An unpretentious high school dropout, Kerkorian started with $12,000 after World War II and made his first killings trading airplanes. To keep his inventory in shape, he started an airline. In a characteristic series of deals, he sold the growing airline in 1962, then bought it back and took it public, keeping most of the stock. Seven years later he sold it again, this time to Transamerica Corp., the insurance conglomerate, personally reaping $104 million.

Since he got control of MGM, Kerkorian has demonstrated little interest in cinema. He virtually mothballed the studio. Instead of making lots of movies, MGM built the MGM Grand casino-hotel in Las Vegas, and another in Reno. Both won big, so he spun off those operations to shareholders, including himself. Kerkorian sold the casino-hotels last year, getting $286 million for his 70% stake. In 1981 the somnolent MGM movie company borrowed heavily to buy the more active United Artists. MGM/UA made plenty of pictures, mostly box-office bombs; at times profits from the pay-TV and videocassette markets sustained the company. To highlight that part of MGM/UA's business, Kerkorian created MGM/UA Home Entertainment Group and sold 15% to the public. MGM/UA bought back the stock last year. For all his dexterous juggling of assets, Kerkorian never made a successful film company of MGM/UA. If he ever learns to produce money-making movies, he might be unstoppable. As it is, he is worth a mere $600 million or so.