TIME: Almanac 1993/TIME Almanac 1993.iso/time/071089/07108900.014

Text File | 1992-09-23 | 6.1 KB | 114 lines

                                                                                BUSINESS, Page 44

Heading for D-Day in Delaware


A judge will soon decide whether Time Inc. is up for sale


    Circling each other warily, always on the lookout for
decisive openings, Time Inc. and Paramount Communications
engaged in a fresh round of legal and financial swordplay last
week. No clear winner emerged in the epic duel, but the thrusts
and parries offered Wall Street speculators plenty of
titillation -- and uncertainty. Time's board started off by
rejecting Paramount's sweetened takeover bid, in which the
company raised its offer for Time from $175 to $200 a share, or
a total of more than $12 billion. The Time directors reiterated
their plan to go ahead with an acquisition of Warner
Communications for as much as $14 billion in cash and
securities. Investors who expected the new Paramount bid to run
up the price of Time stock were also disappointed. The company's
shares, following the trend in the rest of the market, declined
to 155 1/4 at week's end (from a high of 182 3/4 less than three
weeks earlier) as speculators began to hedge their bets.

    Time's management was called upon to explain its strategy
last Friday, when more than 1,000 shareholders jammed into the
grand ballroom of Manhattan's New York Hilton & Towers for the
company's annual meeting. The stockholders, many of them Time
employees, were less confrontational in their questioning than
had been expected and indeed several times warmly applauded the
Time management. Even so, several criticized the Time-Warner
deal because shareholders were not asked to approve it.

    Others expressed anger that the Time directors had refused
to go along with the Paramount bid, which could deliver a
windfall to Time stockholders. There were also expressions of
concern about the debt of up to $14 billion that will burden the
Time-Warner combination. Although the initial merger deal had
been hailed for being debt-free, Time Chairman J. Richard Munro
argued that the cash flow of the two companies will be adequate
to service the debt. "We hope we can avoid layoffs and asset
sales," he said. "The best way to pay off the debt will be
through growth." Several shareholders had said they would vote
against the re-election of four directors, including Munro and
President N.J. Nicholas, but the slate was elected with 74% of
the votes cast, or 55% of outstanding shares.

    The legal struggle, meanwhile, spread to hundreds of cities
in which Time's cable-television subsidiary owns franchises. One
of Time's anti-takeover strategies has been to say that the
transfer of the local cable licenses required by a Paramount
takeover would create crippling delays. Time won some support
on that front when the U.S. Conference of Mayors and the
attorneys general of 13 states expressed concern to the Federal
Communications Commission that a hostile takeover of Time's
cable-TV operations might violate laws that give state and local
governments the right to approve changes in ownership. But in
one instance, a federal judge in Orlando denied a temporary
injunction sought by the city of Casselberry, Fla., to block the
Paramount bid on those grounds.

    At the same time, FCC officials questioned Paramount's plan
to hold any shares tendered by Time stockholders in a trust, to
be administered by former Defense Secretary Donald Rumsfeld,
until the local governments approve the transfer of Time's cable
systems. Citing what the FCC called contradictory and confusing
statements from Paramount about how this process would work, the
agency refused to grant the trust a temporary authorization to
operate the cable systems until Paramount spells out its plans
more clearly.

    The Time-Paramount brawl may eventually turn principally on
one central legal issue: Did Time's original decision to merge
with Warner in effect put Time up for sale? That question could
be resolved in the elegant 18th century Court of Chancery in
Wilmington, Del. Starting next week, Chancellor William Allen,
44, the chief judge of the Chancery, will hear arguments in the
Paramount-Time case. Lawyers for Paramount hope to persuade
Chancellor Allen that Time's board neglected its responsibility
to shareholders by rebuffing Paramount's bids. Time will
respond, as Munro did at last week's meeting, that it has never
been for sale and that its planned acquisition of Warner, which
antedated the Paramount bid by several months, is not a
defensive move against being taken over but part of a carefully
crafted business strategy to ensure Time's competitive position
in the global marketplace.

    But where is the line between the short-term interests of
shareholders and a board's determination to try to build
long-term shareholder value? In a 1985 case, the Delaware court
ruled that once the sale of a company is inevitable, the
directors must act as disinterested auctioneers, obtaining the
highest possible price for the company's shares. But last March,
ruling in the attempted takeover of TW Services, a food company,
Allen found that a corporation "may find it prudent to make
decisions that are expected to promote corporate (and
shareholder) long-term interests, even if short-run share value
can expect to be negatively affected."

    Last week Chancellor Allen summarily rejected a request by
three major Time investors to postpone the company's annual
meeting, saying the meeting would cause no irreparable harm to
the cause of shareholders in light of his upcoming decision on
the Paramount complaint. Peering at the crowded oak-paneled
courtroom from a red leather chair he had settled into with
considerable pain because of chronic arthritis in his legs,
Allen excused himself for taking only 20 minutes to make up his
mind. "I thought it was more important to spend my time
preparing for the July 11 matter," he said, referring to next
week's hearing on the larger case. His next decision in the
matter will be an important milestone not only for Time, Warner
and Paramount but for the rules that will govern corporate
America.