Why did Quincy Jones, Rupert Murdoch’s News Corp., the Tribune Co. and Time Warner Inc. get a small gold mine while Viacom got the shaft? Because, as they say in the PR biz, the whale that comes to the surface gets harpooned. Especially if the whale wants to swim through a racial preference loophole when “affirmative action” has become a dirty term in Washington.
Viacom, of course, was trying to get a socalled minority tax certificate to avoid paying $500 million or so of capital-gains tax on the proposed sale of its cable-TV systems. It wants to sell the systems to help pay off debt from its $10 billion purchase of Paramount Communications. Minority tax certificates were created by the Federal Communications Commission in 1978 to increase minority ownership of media properties. The idea was that sellers to minorities would take a lower price because of the tax savings. Like many well-intended things, though, this program became a joke, with many white-controlled companies hiring sharp lawyers and minority front men to get most of the benefit.
News of the Viacom sale began leaking in August, five months before the formal announcement. That helped boost Viacom’s stock price enough so it could conclude its then-pending deal to buy Blockbuster. The advance news meant that by the time the deal was announced, it was already being attacked in the press, By contrast, there was no showboating from Tribune and Jones, who are buying an Atlanta TV station from News Corp. and a New Orleans station, 51 percent of which is owned by Jones. Enter Rep. Bill Archer, Republican of Texas, chairman of the House Ways and Means Committee. Archer announced on Jan. 17 that be wanted to knock out the FCC racial preference program.
Archer’s bill, introduced on Feb. 6, went out of the base line to tag Viacom. It did this by killing tax-certificate deals in which sellers hadn’t filed the necessary FCC approval forms by Jan. 17, the day that Archer made his original announcement. Viacom had filed its forms on Jan. 20. Normally, tax legislation takes effect no earlier than the day it’s introduced. indeed, part of Archer’s bill, which deals with tax technicalities, has an effective date of Feb. 6. The bill seems sure to become law by April 17, Tax Day.
But while Archer went out of his way to get Viacom, a House Senate conference committee went out of its way last week to solve a potential problem for Tribune, Jones, the News Corp. and Time Warner at the behest of Sen. Carol Moseley-Braun, Democrat of Illinois. She wanted to save the whole minority-preference program, one of her key aides said, but had to settle for helping Tribune. Tribune’s lawyers were worried that the language in the anti-Viacom bill could kill sellers’ tax breaks, thus increasing Tribune’s costs. This despite the fact that the FCC papers were filed in December, well before the effective date.
When you look at who actually owns the Tribune-Jones company, you start to giggle because, as in many of these tax deals, things aren’t what they seem to be. Even though Jones, who is black, and other minority buyers (among them talk-show host Geraldo Rivera) nominally control 55 percent of the company, they are actually putting up onlv 9 percent of the monev and will effectively own only a 9 percent stake. Tribune, which is putting up 78 percent of the money, will effectively own 78 percent. Other investors will buv the other 13 percent. Selling to this “minority” company lets the News Corp. avoid an estimated $25 million of taxes. And it lets Jones, the 51 percent owner of the New Orleans station, and Time Warner (49 percent) avoid about $3 million of taxes.
Jones, who wouldn’t comment, is doing something truly wonderful. He sells a station 51 percent black-owned to a buyer no more than 22 percent minorityowned and gets a tax break designed to increase minority ownership. Tribune cares deeply about these tax breaks. If they don’t come through, Tribune has to pay the sellers an extra $13.5 million. Tribune declined to comment.
You have to love this. Congress trashes Viacom, ostensibly to generate tax revenue that the Treasury may never see because Viacom swears it will find another loophole to squeeze through. Meanwhile, Congress helps Tribune’s sellers duck a possible $28 million of taxes that the Treasury would surely collect if the tax breaks don’t go through. Someone, somewhere, may understand the justice and logic here. But I sure don’t.
