HUNTING SEASON OVER?

By John Greenwald

The courtship had all the frenzied twists of a Looney Tunes cartoon--or CNN's Gulf War coverage. For nearly a month, with the world looking on, Time Warner chairman Gerald Levin used shuttle diplomacy to pursue an $8 billion merger with Ted Turner's Turner Broadcasting. Spectators watched in bemusement as Time Warner acknowledged its courtship, then appeared to be stymied by cable-TV king John Malone, a Time Warner rival whose Turner stake gives him effective veto power over a deal. But by Sunday, as TIME went to press, Levin and Turner were tantalizingly close to sealing an agreement to create the world's largest media company. "For Levin it's brilliant," says Mario Gabelli, whose Gabelli Funds hold some 5 million shares of Time Warner.

But the deal, which would vault Time Warner ahead of the newly combined Walt Disney Co. and Capital Cities/ABC, raises questions ranging from how Levin, Turner, Malone and top Time Warner executives would co-exist to the impact on Time Warner shareholders. The buyout would lock the cerebral Levin into a potentially volatile alliance with the driven and charismatic Turner, who would own about 11% of Time Warner stock and become its vice chairman under the expected terms of the agreement. "In bringing Turner in, Jerry is rolling big dice," says a media-industry watcher. "He may continue to be chairman in title, but Ted brings an energy to the company that has been missing for years."

To make matters dicier, a merger would also bring Malone, the chairman of Tele-Communications Inc. and a man with a bent for elaborate corporate schemes, into Time Warner's fractious family. Malone, who stands to convert the 21% of Turner stock he controls into about a 9% stake in Time Warner, strung out the talks with a long and changing list of demands that threatened to block an agreement. "He asks for everything," says a Time Warner executive. "You never know when he's finished." Levin and Malone hashed out their main differences at a Sept. 9 meeting at TCI headquarters in Englewood, Colorado, followed by a two-hour session last Wednesday at Time Warner offices in Manhattan.

Sources close to the deal said Malone won concessions including a premium for at least some of his Turner stock, which Time Warner would acquire from other shareholders at the rate of three-quarters of a share of Time Warner for each share of Turner. It was expected that Malone would also receive "favorable terms" when purchasing programming such as CNN or Time Warner's HBO to run on his cable systems. But Time Warner refused to eliminate its poison-pill defense against takeovers, which kicks in when a shareholder acquires 15% or more of the company's stock, and reportedly declined to put Malone on its board. Without the poison pill, a large shareholder such as Malone or Edgar Bronfman Jr., who heads Seagram and MCA and controls 14.9% of Time Warner, could gobble stock and launch a hostile bid for the company. (Bronfman's stake would drop to about 9% after the merger.)

But hey--what about actual product? A big question remains as to how Levin would meld Turner franchises, ranging from CNN to New Line Cinema to the Atlanta Braves, into Time Warner's vast array of film, music, publishing and cable ventures. To land Turner Broadcasting, Levin has said it can run as a stand-alone company. Yet that could make it tough to integrate Turner into Time Warner to achieve cost savings--let alone synergy, the talismanic media-company goal that sounds so good and is often difficult to attain. On the other hand, Time Warner could distribute Bugs Bunny, Daffy Duck and Wile E. Coyote throughout the world via Turner's fast-growing Cartoon Network, and combine HBO with Turner channels into an attractively priced package for operators of cable systems from Moscow to Calcutta.

Meanwhile, some Time Warner stockholders worry that the nearly 200 million shares that Time Warner proposes to issue for Turner would reduce the value of their investments. Others point out that the deal would bring Time Warner $2.9 billion in new revenues and $600 million in fresh cash flow. "Time Warner isn't paying a stupid price," says Jeffrey Logsdon of the Seidler Companies investment firm in Los Angeles. "It's a healthy price." For Levin and Time Warner, it's the price of being No. 1 again.

--Reported by John Moody and Barbara Rudolph/New York

With reporting by JOHN MOODY AND BARBARA RUDOLPH/NEW YORK