Those Guys Have All the Fun - James Andrew Miller [69]
HERB GRANATH:
In 1985 Leonard Goldenson, the ABC founder, was looking around at all these major conglomerates that were “diversifying” and buying up a lot of properties. Leonard was eighty, and he did not want his baby to be gobbled up by some faceless conglomerate. He wanted a broadcaster to run the company. So Leonard went to see Tom Murphy and Dan Burke of CapCities and basically said, “Tom, I want you to buy ABC.” Tom choked and said, “That would be the ultimate minnow swallowing the whale, there’s no way we could afford to do this.” And Leonard said, “Yes there is. Warren Buffett is on a plane heading here from Omaha and he’s got”—I’m trying to remember the number, I think it was—“$3 or $4 billion that he’s going to put up to buy ABC stock. And he’s also going to give irrevocable voting rights to either you or Dan as long as either of you is CEO of ABC, which will give stability to the company.” Warren joined the board because he was one of the major shareholders of the company. And that’s the way it was done.
When it was first announced, in March of 1985, the purchase of ABC by Capital Cities Communications was a shock to the entire broadcasting industry and to many more-than-casual observers. CapCities paid $3.5 billion for ABC, even though ABC was four times bigger than CapCities when the deal went through. It was financed in part by busy billionaire Warren Buffett, chairman of the exclusive Berkshire Hathaway investment company, and for his resourcefulness and troubles, Buffett now had a 25 percent stake in the new combined company.
Much of the scuttlebutt about the deal concentrated on the fact that CapCities was a very conservatively run, by-the-book company. Speculation spun about what the effect would be on ABC’s operations. Together, the new company owned more TV stations than FCC rules allowed, so lawyers and executives set about deciding which stations were expendable (read: less profitable). Some radio stations with overlapping signals also had to be jettisoned.
Almost forgotten at the back of the room: ESPN, the same network that Murphy and Burke heard so much about from Bill Grimes when he was trying to get them to buy during the Texaco takeover of Getty. ESPN wasn’t very prominent in news stories about the CapCities deal, but make no mistake: Murphy and Burke had a very strong sense of what it was, and what it could become. And they proved it when they turned down an incredibly attractive offer to sell it.
DON OHLMEYER, Ombudsman:
In early ’86, after CapCities had closed on its purchase of ABC, I approached Ross Johnson with a wild idea. “Look, these guys are carrying ESPN on their books at $220 million or whatever. I don’t know if we have the balls for this, but I think we should take a look at it. CapCities is basically into stations and local broadcasting. Absorbing a broadcast network is going to be a tough nut to swallow, and running a sports cable network is not exactly their cup of tea. I’ve done the homework. We could go in and offer them $500 million. That would double the money for them and could be one of the great investments of all times for us.” Ross thought about it and said, “Go ahead and see where their heads are at.”
So I met with Dan Burke. We chatted for a while, and then I got to the point. “Dan, I want to talk to you about ESPN.” That seemed to perk up his interest. I said, “I don’t know what your thoughts are, but I know you guys have always been focused on the station business and now you’ve got a network to digest. We’d be prepared to offer you north of $450 million for your interest in ESPN.” There was a moment of silence, then he said to me, “You know, I’m sure that is an extraordinarily fair offer, but I have to explain something to you. Tom [Murphy] and I are buyers, not sellers. In our entire history in business together, we’ve never sold anything other than something that we had to divest because of a conflict