Chris-Craft Industries, exasperated by its 15-month experience as Warner Communications' largest shareholder, Tuesday shed its "white knight" cloak with a declaration that it may increase its 28.5% voting stake or align with other shareholders to force certain changes at Warner.
In a filing with the Securities and Exchange Commission, Chris-Craft disclosed that talks with an investor group led by Warner Chairman Steven J. Ross about a buy-out of Warner's public shareholders recently broke off because Chris-Craft found the proposed terms unsatisfactory.
Chris-Craft also reported that it has tried and failed to win more seats on the Warner board, where it currently holds three of 13 seats.
The company stopped short of declaring a proxy fight but vowed that it will talk to other investors to determine "whether there is a community of interest in seeking to promote greater sensitivity of the (Warner) board . . . to stockholder interests."
Possible Bidding War
"This is an invitation to start a bidding war for Warner," one investment community executive said, while an investment banker predicted that "all or part of it will change hands."
One lawyer who specializes in takeover strategies observed, however, that both Warner and Chris-Craft may have difficulty enlisting a new partner in their battle. Warner might not want to swap one white knight for another, while Chris-Craft might have difficulty finding a buyer for Warner that is capable of paying cash. If a buyer offers to swap its stock for Warner, it has "got to worry about (Chris-Craft Chairman Herbert J.) Siegel becoming (its) biggest shareholder," the lawyer said.
Chris-Craft was welcomed last year as a friendly investor when Warner was fighting a takeover threat from Australian publisher Rupert Murdoch. As reported by The Times in March, however, the once cordial relations between Ross and Siegel frayed to the point where each sought to end their business dealings in a face-saving manner.
Tuesday's filing was the first confirmation of the long-rumored efforts by Ross to take the company private in a leveraged buy-out. Ross, although a company co-founder, owns less than 1% of Warner's stock.
Although Chris-Craft did not divulge the proposed terms, one source indicated that the buy-out proposal included cash and securities worth about $30 per share in current value.
If that price is accurate, "that is a ludicrously low number for Warner Communications," said Gordon Crawford, senior vice president of Capital Research Co., a Los Angeles-based firm that holds more than 4 million of Warner's 60 million shares for clients.
Warner shares closed Tuesday at $27.125 on the New York Stock Exchange, down 12.5 cents, on a volume of 109,900 shares.
Warner Vice President Geoffrey W. Holmes declined to comment on the proposed terms of the leveraged buy-out, but he said, "We were shocked at the statement by Chris-Craft that they were seeking to promote 'greater sensitivity of the (Warner) board to stockholder interests' as the (Warner) board has always been dedicated to the interests of all our shareholders."
In response to a question, Holmes said Warner has decided to postpone its annual shareholders meeting scheduled for June 27 in Los Angeles. He gave no reason for the postponement.
Several sources said Chris-Craft wanted the Warner board expanded to 18 members, with Chris-Craft getting seven seats. Under Warner bylaws, the existing board could approve up to 30 seats.
Holmes said that, "although the management of Warner has been receptive to increased representation by Chris-Craft on our board of directors, it has also been sensitive to the fact that the interests of Chris-Craft shareholders are not always synonymous with the interests of (Warner) shareholders."