Billionaire Warren Buffett and Capital Cities/ABC chairman Thomas Murphy, two of our guys, made the Disney-Cap Cities sale happen. Although the announcement was a total surprise, it now turns out that Buffett, 65, and Murphy, 70, had been talking to Disney chairman Michael Eisner, 53, on and off for years. Buffett’s Berkshire Hathaway conglomerate is Cap Cities’ biggest stockholder; Murphy and the now retired Dan Burke built Cap Cities from a one-station operation into a huge company.
By selling to Disney, Buffett and Murphy diversify their money into a company more stable than broadcasting. But they pay a big price: a hefty income-tax bill, because the cash part of Disney’s cash-and-stock package is immediately taxable. Keeping their Cap Cities shares would have let Buffett and Murphy defer taxes indefinitely. The fact they’re willing to pay big bucks to Uncle Sugar makes me suspect that they preferred Eisner to Murphy’s heirs-apparent at Cap Cities.
The third seller is CBS chairman Laurence Tisch. Tisch, 72, has made plenty of mistakes since taking control of CBS in 1986; among other things, he sold CBS’s magazine and record businesses too cheap. But Tisch has done a great job of making money for CBS stockholders, the biggest of which is Tisch’s family-controlled Loews Corp. conglomerate.
Ironically, Buffett and Tisch sold major pieces of their TV holdings not long ago for far less than they now command. Buffett sold one third of Berkshire’s 30 million Cap Cities shares back to Cap Cities for $630 million in December 1998. He was so eager to exit that Berkshire, famous for paying only minimal taxes, actually paid capital-gains tax on its $457.5 million profit. Now, Disney is paying a partly tax-deferred price almost double what Buffett got in 1998. No wonder Buffett–who owns 15 percent of NEWSWEEK’s owner, The Washington Post Company–is still eating his liver, grumbling publicly about how bad his timing was.
Tisch, too, has been pulling the rip cord, with Loews selling heavily in last August’s buyback in which CBS paid 865 a share. Westinghouse’s price is about 25 percent higher. Oh, well. Loews still will have made more than $1 billion. What’s more, CBS has given Tisch stock options that would be worth about $10 million at Westinghouse’s price. Hey, even billionaires can use a little walking-around money.
In all, Berkshire will have turned its original $517.5 million Cap Cities investment into cash and stock worth more than $8 billion. Total pretax profit: around $2.5 billion. You can see how Buffett has gotten to be the second wealthiest person on the Forbes 400 list. Loews’ profit at CBS is much smaller-a mere $1.1 billion or so. In all, Loews spent $881 million for CBS shares, got $920 million in three separate buybacks and still owns $900 million worth of stock. It’s also knocked down more than $100 million of dividends. Not bad for the crew that lost the NFL.
Synergy, shmynergy. These may turn out to be great deals for the buyers. Then again, maybe not. The folks who can’t lose are the Three Old Guys who are selling at these fancy prices. The major factor in these deals is Buffett, Tisch and Murphy deciding to bail out. The buyers’ dreams of cosmic synergies and international distribution are nothing but a distant second.
