Son of an anti-communist billboard salesman
, Ted Turner spent the 60s and 70s buying up southern radio stations, founding CNN, the pioneering 24-hour cable news channel, and wanted to expand. He wanted to own the Columbia Broadcasting System, more commonly known as CBS. Unfortunately for Turner, there were two issues: 1. CBS wasn’t interested in selling; and 2. Wall Street wasn’t interested in financing
his scheme. Turner’s plan of a leveraged buyout
for CBS, was a maneuver that was seen in spades across the decade but left potential investors leery. Even if chances of Turner’s plans succeeding were almost dead upon hitting the press, CBS got spooked. The broadcast company spent nearly a billion dollars to buy back its own stock
to avoid a Turner takeover. That defensive move saddled the company with massive debt that it quickly acted on to alleviate.
In 1986, CBS began unloading various parts of its company, including its book publishing arm and CBS Songs
, the former music publishing arm of CBS Records. That same year, a relatively unknown company called Triangle Industries, with the backing of the famously illicit investment bank Drexel Burnham Lambert
, made an offer to Laurence Tisch
, then CEO of CBS. Walter Yetnikoff, then president of CBS Records, made a frantic bid not to be outmaneuvered out of the company that he thought was rightfully his. Though not originally reported at the time, Yetnikoff asked Sony to help finance the deal; a company whose working relationship with CBS dated back to the late 60s.
Sony, innocent in the ways of big-time mergers and acquisitions, knew that it would need help. Schulhof called on a new “boutique” merchant banking firm, The Blackstone Group, headed by a former co-C.E.O. of the Lehman Brothers investment banking firm and the United States Secretary of Commerce, Peter G. Peterson, and Stephen A. Schwarzman, an acquaintance of Schulhof’s.
Blackstone, one of the earliest private equity firms to exist, helped play a small part in this deal but signaled a bigger shift within the music industry. Across the music trade press, the potential (and eventual) sale of CBS Records suddenly made every record label’s value skyrocket. There was a giddiness across the music industry to ingratiate itself into the monied world of Wall Street. (“It says record labels can be valued in the same manner as any major U.S. industrial corporation.
”) All of a sudden, eight, nine, and even ten-digit price tags were being put on records labels when the industry had only become a billion-dollar industry in the early 70s. Sony’s purchase set the stage for the high-priced acquisitions and consolidations that defined much of the 90s boom. Once the collusion-filled CD bubble burst in the early 00s, private equity was ready to make its real debut.