The honeymoon appears over for Warner Communications Inc. and Chris-Craft Industries Inc., scarcely one year after the two companies swapped large blocks of stock to help Warner fight off an unwelcome takeover threat from Australian publisher Rupert Murdoch.
Sources close to both companies say the once-cordial relations between Warner Chairman Steven J. Ross and Chris-Craft Chairman Herbert J. Siegel have reached a point where the two men speak only at Warner board meetings, and each man is determined to extricate himself in a face-saving manner.
Ross is bent on regaining control of the company he co-founded 24 years ago, according to several men who know him well. Even though Warner is debt-ridden and Ross owns less than 1% of the company's stock, top Warner officials are trying to devise a plan to buy out Chris-Craft's 28.7% stake in Warner's voting shares, sources say, or take the company private.
Siegel, however, may balk at selling Chris-Craft's stock to Warner. The Chris-Craft chairman has told at least one acquaintance that he fears such an act would be regarded as "greenmail," or the acceptance of a premium for his stock not offered to other shareholders. On more than one occasion, Siegel has voiced objections to that practice.
Instead, sources indicate, Siegel may be preparing to seek greater representation on the Warner board, or the sale of Warner to a third party, unless Warner devises a buy-out that benefits all shareholders equally.
It is an embarrassing impasse for the two well-known executives who travel in some of the same social circles in New York and heralded their business arrangement in interviews 14 months ago. In January, 1984, after Chris-Craft agreed to swap 42.5% of its broadcasting subsidiary for 19% of Warner, the 56-year-old Siegel told The Times that he considered the investment long term and hoped it would continue "after I'm gone out of this world."
Ross, for his part, declared at the time that "Herb is a passive investor. His philosophy is the same as ours."
Although Ross has not responded to a Times reporter's letters or calls for the last seven months, he said through a spokesman Thursday that his "relationship with Herb Siegel is great."
Siegel--normally available for comment on Chris-Craft affairs--declines to talk about Warner. One source close to him, however, says the situation may have improved slightly in recent weeks as Warner works toward a solution.
One source says the business differences have not resulted in personal rancor between Ross and Siegel, but others report considerable tension, which one former Warner executive describes as "open warfare time."
Siegel's initial enthusiasm apparently has been chilled by board-room bickering and Warner's underestimation of the losses it would encounter throughout 1984. Although Siegel repeatedly told colleagues and the news media that he had no desire to run Warner, he has also said he would take steps needed to protect his investment. Earlier this month, he told one luncheon companion that Warner errs if it mistakes his "kindness for weakness."
On Wednesday, the price of Warner stock hit a new 52-week high, closing at $25.875 on a volume of 554,800 shares. Yet another 52-week high was established Thursday when the stock closed at $26.125, on a volume of 244,200 shares. Some sources said traders were reacting to reports of the Siegel-Ross rift and to rumors that Warner planned a significant announcement in the next few days or weeks. An average of 211,200 shares of Warner traded daily in the 50-day period ended March 15.
Siegel's disenchantment may have begun after he and two colleagues joined the Warner board last May, gaining a closer look at Warner's operating style. Siegel apparently objected to Warner's lavish overhead and the continued nurturing of money-losing ventures in restaurants and sports franchises at a time when losses were mounting at the Atari subsidiary.
Although Ross told shareholders last May that he expected profitability to return to the company in the last six months of the year, Warner ended 1984 with losses of $586.1 million, exceeding the losses of $417.8 million posted a year earlier. Shareholder equity plummeted to about $340 million at year's end, down from $960 million at the end of 1983.
Siegel undoubtedly has also been dismayed by Wall Street's reaction to Warner stock. Despite the stellar performance of Warner's core businesses (motion picture and television production, recorded music and publishing), Warner shares have ranged from $17 to $25.625 until Wednesday established the new 52-week high. The price seldom topped the average $25.41 per share that Chris-Craft invested in its Warner holdings and was far below the $50-to-$60 range achieved in Atari's heyday in the early 1980s.
Since Chris-Craft has no pressing need for cash, and because Siegel is believed to be proud of his reputation as a shrewd investor, sources say he is bound to hold out for a profit on the Warner investment.