Metromedia, already the third-largest shareholder of Orion Pictures with a 4.1% stake, on Wednesday disclosed an agreement to increase its holdings to 12.6% by purchasing 1.6 million newly issued shares for $20.4 million.
The agreement, announced by Orion, was immediately interpreted by some industry sources as a protective move by Orion in the event that its largest shareholder, Viacom International, sells its 23% stake.
Orion's decision to issue new shares will dilute Viacom's stake to about 18%, a Viacom spokesman said, but he declined further comment.
Viacom bought its stake in January, when Orion apparently sought to block two unsolicited bids for control of the New York-based entertainment company.
First Thing to Be Sold
Since then, however, Viacom's own problems have mounted, as its management fought off two uninvited investor groups that acquired large stakes. Now a third investor group, led by New England theater owner Sumner Redstone, has accumulated 18% of Viacom's shares, has regulatory permission to raise that to 24.9%, and is weighing a takeover bid, even though Viacom directors agreed on Oct. 17 to sell the company to a management-led group.
"Clearly, (the Orion stake) is the first thing that will be sold from the Viacom portfolio, whoever wins it," one investment banker said Wednesday.
In addition to its current holdings, Viacom secured the right to purchase a 5.2% stake held by Home Box Office, the second-largest Orion stockholder, if Home Box Office decides to sell before Feb. 24, 1987.
Metromedia is a general partnership controlled by John Kluge and Stuart Subotnick, who both joined the Orion board this year after Metromedia bought its initial Orion stake last spring.
Kluge, 72, who has controlled Metromedia and its predecessor companies since 1959, earlier this month was identified as the second-wealthiest person in the United States by Forbes magazine, which placed his net worth at well over $2.5 billion. Subotnick, 44, is a tax lawyer and longtime Metromedia executive.
"Kluge is a very good friend of (Orion Chairman) Arthur (Krim)'s," the investment banker said.
"Whatever is going to happen with Viacom, the feeling is those shares are going to be put up for sale," he said. Noting that Orion retained the right of first refusal to buy Viacom's shares, the banker said: "Maybe this is a way for the company to raise the money" to repurchase its shares.
Orion Executive Vice President William Bernstein declined to say whether his company has sought, or won, a "standstill" agreement from Metromedia not to increase its stake again. He added that the agreement to increase the Metromedia stake still must be approved by the Orion board.
Under the terms of the agreement, Metromedia will pay $12.75 per share, which was the Oct. 27 closing price of the company's common stock on the New York Stock Exchange.