POWER LUNCH by Ronald Grover December 31, 1999

How GE and Time Warner Could Play Let's Make a Deal
NBC is likely to become a joint venture with someone -- and Time is the best bet

Sometimes, waiting is a virtue. That's what they've got to be thinking at NBC's New York headquarters. The top-ranked network is the only one of the major broadcast companies not linked to a major media company or film studio. That makes it the prize catch of 2000, and the Peacock won't have any shortage of suitors. Moreover, with the impending retirement of Jack Welch, chairman of NBC parent General Electric, expect 2000 to be the year that NBC finds a new partner.

Not that it will be easy. Welch & Co. want value for their network and may try to forge an unusual joint venture to help retain at least partial control. But the benefits of a deal are just too great for all concerned to allow one of the crown jewels of the media world to remain independent for much longer.

Who are the likely bidders? USA Network chief Barry Diller has already made a bid and will likely make another. So, too, will MGM studios, Kirk Kerkorian's fabled film empire. Kerkorian has put it in the hands of a trusted aide, longtime dealmaker Alex Yemenidjian, who says he wants alliances in the industry to make use of MGM's mammoth library of older flicks and TV episodes. Cable titan Ted Turner -- Time Warner vice-chairman -- has also said he wants to buy the network, which would give Time Warner another major outlet for its films and TV shows.

ON-AGAIN, OFF-AGAIN. My money is on Time Warner. The two companies have been circling each other for years, on and off. The only thing that has prevented a deal is the issue of control. GE wants to keep its hands on the network. Time Warner so far hasn't come up with the $40 billion or $50 billion it would take to pry it away.

So where's the compromise? Look no further than a separately traded Time Warner unit called Time Warner Entertainment, home of such prized Warner assets as HBO and Warner Bros. studio. When Time Warner was strapped for cash some years back, it sold off pieces of the unit, notably to U.S. cable operator MediaOne.

Time Warner Entertainment has been a thorn in the side of Time Warner Chairman Gerald Levin ever since, and more recently the MediaOne stake -- about 25% -- has been the source of great frustration. Time will soon transfer that stake to AT&T, which has a deal to buy MediaOne.

The betting here is that GE will step in and buy the MediaOne 25% stake from AT&T once the deal is completed, sometime this spring. Then Time Warner -- voluntarily, of course -- could swap 25% of its remaining 75% stake in Time Warner Entertainment for a stake in NBC. The result: GE could use its stake in NBC to take a 50% stake in the entire Time Warner Entertainment subsidiary. That would give GE a piece of HBO and the Warner Bros. studio and allow it to keep a stake in NBC.

How's the deal likely to get done? Keep your eye on John Malone, a major shareholder in AT&T following its acquisition of TCI, his former cable company. Malone also just happens to control a 9% stake in Time Warner through his Liberty Media investment vehicle and is close friends with Turner. As they say at one of Turner's pro wrestling matches, get ready to a rumble -- but the fix may already be in.

Grover covers the media industry from his post as Los Angeles bureau chief

EDITED BY DOUGLAS HARBRECHT _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _

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