For anyone wondering, in reading about Rupert Murdoch’s bid to acquire Time Warner, whether he or she is suffering a case of Yogi Berra déjà vu all over again—relax. It did all happen before, and the last time it got really interesting.
In the summer of 1983, the company then called Warner Communications (WCI) was in big trouble. The problem was its Atari division, which made games. But that bubble had burst, and a cascade of losses—they would exceed $1 billion, which was actually a sizable number in 1983—had begun.
Worse, several Atari executives, having presciently foreseen the cataclysm that was about to overtake Atari financial results, sold their WCI stock at a time, and in a manner that one could argue was shrewd planning, but which the SEC preferred to see as insider trading. It was not a good time at Warner. In fact, it was a time when the inside joke at the headquarters at 75 Rock was that the next time someone heard a WCI executive say we were going to fund a transaction with a revolver, no one could be quite sure what that meant.
Enter Rupert Murdoch, who had a nose for blood in the water that most sharks would envy. Here some of the information gets anecdotal. Supposedly, Murdoch told Warner CEO and founder (sort of) Steve Ross that he was interested in buying WCI stock. Reportedly, Steve told Rupert something like “fine with me—wise investment.”
Whether that feeling of good will and camaraderie lasted days, hours or minutes is a matter of some debate, but that is really unimportant. What is important is that Steve Ross quickly realized Rupert was coming after him at a time when all of Ross’s resources, personal and financial, were at a low.
Arthur Liman, a highly regarded legal counsel and Ross eminence grise, brought in another client of his, Herb Siegel, CEO of Chris Craft and an aspiring entertainment mogul, to play White Knight. Liman, Siegel, and Ross constructed a so-called Stock Exchange Plan in which WCI would receive a 42.5 percent interest in BHC, the Chris Craft television subsidiary (yeah, I know, you thought they made boats) in exchange for 19 percent of the voting stock of WCI.
There were various ways to characterize this arrangement ranging from brilliant to a nefarious marriage of convenience. A disinterested third party, the Delaware Court, got involved in this semantic dispute, and it turned out the court was uninterested as well as disinterested. It said, in a manner of speaking, “Go away and leave us alone.”
Meanwhile, the Court did not force WCI and Chris Craft to unwind the transaction. With the exchange of shares now firmly in place, an acquisition of WCI by Murdoch became close to impossible. The circumstances also created a marriage of Ross and Siegel that was destined for predictable disaster, but this was one of those not infrequent any-port-in-a-storm corporate marriages.
Despite these brilliant, or nefarious, machinations, Ross worried. (Steve was not given to needless worry, and often displayed his iron gut in business transactions. What I am saying is that if Steve was worried, and he was, there were good reasons.)
Accordingly, despite the counsel of many advisors, Steve pushed for, and, under the “What-Steve-wants-Steve-gets doctrine,” secured the approval of the WCI board to buy out Murdoch’s WCI shares at a very sizable premium. Let’s just say it was a lot more than you would have gotten if you had sold your WCI shares on the stock exchange the same day.
Once again the world was left with a semantic puzzle: Was this greenmail or not? Greenmail is what I used to call “go-away money”—the kind I would try to get from my older teenage sister to leave her and her boyfriend alone, pretty much forever. Two years after the WCI buyback of its shares from Murdoch at a substantial premium, the Tax Reform Act of 1986 did its bit to make such go-away inducements, whatever you chose to call them, costly as well as unpopular.
That was thirty years ago, and now HE’S BACK. Makes you wonder if there were some sort of expiration date on the original go-away agreement, and whether Warner, miscalculating Rupert’s longevity, should have asked for a longer deal.
Warren Christie is a former executive of Warner Communications and its successor, Time Warner.