TIME: Almanac 1990/1990 Time Magazine Compact Almanac, The (1991)(Time).iso/time/071089/07108900.014

Text File | 1990-09-17 | 6KB | 104 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.