The secret to Ted's success: Finding the hidden value in a deal
Updated: Feb 2, 2021
There are ideas. And then there are big ideas — game changing ideas. This was Ted's superpower.
In 1991, Ted — along with most every major movie studio — wanted to buy Hanna-Barbera, a library of 3,000-plus episodes that included iconic characters like “The Flintstones,” “The Jetsons,” “Scooby-Doo,” “Yogi Bear,” and many others. The company was owned by investor Carl Linder. His investments were across many sectors, including media, but there was no strategic purpose for Carl owning Hanna-Barbera, so he put it up for sale.
My team at Turner Entertainment had prepared background info on Hanna-Barbera in a deck to review with Ted. And after our meeting Ted was going to jump on his plane, meet Carl at a private air terminal in Cincinnati, and, with any luck, close a deal to buy the company.
We had just hired a woman from the investment bank Allen & Company as an analyst in our group, and she suggested we have a bid session with Ted to review our plan. A bid session would game out how the negotiation might go.
So, we went to see Ted and presented the deck. He loved it and was ready to leave, but first we stopped him to discuss the bid. I wasn’t leaving until we agreed on a price since it was my responsibility to ensure that Turner didn’t overpay on these types of acquisitions.
“You play you, and I'm Carl,” I said, “And then we see the possible outcomes — and how we might counter negotiating points Carl might bring up."
Ted started. He asked: "How many MGM and Warner pre-1948 cartoons do we own, and what did we pay for them? And how many cartoons does Hanna-Barbera have in their library?"
I told him. He thought for a minute and quickly suggested a bid of $350 million.
I objected for three reasons: One, it was well above the other bids, which were between $175 million and $225 million. Two, Ted trusted others to crunch the numbers, so I was certain he didn’t actually do that calculation in his head. And, three — also the most important — that was the asking price!
I said as much to him and Ted shot back: "Yeah it’s the asking price, so we will get it. The other people bid too low and never got the deal done. We will!"
I couldn’t argue with that assessment, but I pleaded with him to start the negotiations with a lower price. We went back and forth and finally agreed on $320 million.
"Look me in my eyes and on your kids' lives promise me you will not go a penny above $320 million," I said.
Ted flew to Cincinnati, and closed the deal — at $320 million.
On Oct. 29, 1991, the purchase of Hanna-Barbera went public. But that was just the start of the story. In February 1992 we produced a video that announced the Cartoon Network. The launch announcement increased the company value by over $1 billion — three times what we paid for Hanna-Barbera.
Each of the studio heads that bid lower called me and said a version of: "Wow we did not see that opportunity. Good for you guys figuring that out."
The moral of the story? Every studio had a team of MBAs that used various valuation methodologies to come up with their bids between $175 million and $225 million. This narrow valuation range was a solid indication for what Hanna-Barbera was worth as is. What they were missing was the vision of what was possible. That was Ted's superpower.
And it was not an uninformed lucky guess. Since Ted had run an independent TV station he knew how important cartoons were in programming the afternoon of independent stations in that era. So much so that when Ted bought the MGM library, he planned to sell off some of its assets to partially offset the debt taken on to acquire MGM — all so he could keep its library. He had the presence of mind to trade the MGM/United Artists logo for the MGM and Warner Brothers pre-1948 cartoon library. I am sure Kirk Kerkorian (the UA-controlling shareholder) thought Ted was crazy for wanting the cartoons so badly. But these were not just any cartoons, they are considered to be some of the best cartoons ever made — “Tom & Jerry,” “Bugs Bunny,” “Daffy Duck,” “Elmer Fudd,” and many others.
That decision to keep the MGM and Warner Brothers pre-1948 cartoons and Hanna-Barbera made the Cartoon Network possible. Ted had seen how news on TV stations was on at prescriptive times: the morning, early evening, and late night. But CNN made news a 24-hour viewing habit. Why couldn't cartoons be watched any time of the day?
The MGM deal stretched Turner Broadcasting to its limits. But Ted’s vision for MGM not only created Cartoon Network, but made TNT and Turner Classic Movies possible. Those three networks created tens of billions of dollars of value for Turner shareholders. They were big, non-obvious ideas that resulted in a huge upside.
Ted understood that what something was worth on a standalone basis is different from what value your ideas can create.
About the Author
Scott Sassa joined Turner Broadcasting in 1988 and finished his tenure as president of Turner Entertainment Group and a member of the Turner Board of Directors and the TBS Executive Committee.
You can read more about Scott at http://sassa.com/.