TIME WARNER, TURNER OK MERGER REVISIONS.

Byline: Bloomberg Business News

Time Warner moved a step closer to completing its $6.7 billion acquisition of Turner Broadcasting after the boards of both companies met and reportedly approved a change in the terms.

The revised agreement is designed to avoid a huge tax liability for Tele-Communications Inc., whose 22 percent stake in Turner will convert into 9 percent of Time Warner.

Winning TCI's approval is important to the acquisition because the Englewood, Colo.-based cable company has the power to block it.

Using the revised terms, the companies continue to negotiate with the Federal Trade Commission and could reach a final agreement as early as today, sources said.

The previous agreement called for Time Warner to pay Liberty Media Corp., a TCI company, 5 million shares of Time Warner stock. The payment was to buy a Liberty company called Southern Satellite Systems Inc., which beams television shows to satellites for use by cable television operators.

Under the revised agreement, TCI will retain control of Southern Satellite, which will be spun off into a new company controlled by TCI.

Then, TCI will lease the satellite company back to Time Warner.

The new company is being formed at the request of the FTC, which has asked TCI, the nation's largest cable company, to distance itself from Time Warner, the second-largest.

That company will contain TCI's Time Warner shares.

The complex rearrangement of assets was necessary because TCI needs an asset to spin off into the new company - apart from its Time Warner shares - or it could face a large tax bill.

The formation of the company must be approved by the Federal Communications Commission and, ultimately, the Internal Revenue Service.

Although the entire transaction will ultimately benefit TCI, it still is going to owe the IRS additional taxes for its ownership of Southern Satellite. To even out the exchange, Time Warner will give Liberty an additional $67 million - equivalent to half the $134 million higher tax bite to TCI. Time Warner expects to get that money back in lower taxes on the lease payments for Southern Satellite.