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Unequal Voting Rights Would Discourage Bids : Times Mirror Plans to Create 2 New Classes of Common Stock

September 04, 1987|BILL SING | Times Staff Writer

Times Mirror said Thursday that its board has approved the creation of two new classes of common stock with unequal voting rights, a move designed to protect the Los Angeles-based media company from a hostile takeover while giving it more flexibility in financing acquisitions and raising capital.

The plan, subject to shareholder approval, would permit the issuance to Times Mirror shareholders of one share of a new class of common stock for each share of existing common stock, which they would retain. Owners of the new common stock, to be called Class C, would be entitled to 10 votes per share--compared to one vote on the existing shares--but would not be permitted to sell or transfer the shares except to their family members and "closely affiliated parties," such as trustees and estate executors.

Any other transfer or sale of the Class C shares--which would not trade publicly--would require that the shares be converted into ordinary common stock, with only one vote per share. Thus, if the shareholder desired, the company would swap Class C shares for existing common stock, and those shares could then be sold or transferred without restriction.

By favoring those willing to hold on to Class C stock, the plan would protect--and probably increase--the voting rights of long-term shareholders, particularly the descendants of Times Mirror founder Harrison Gray Otis and his son-in-law Harry Chandler, who together own 32.7% of Times Mirror stock through two trusts and a family-owned investment firm.

That, in turn, would make it more difficult for an outside party to acquire Times Mirror--which owns the Los Angeles Times and other newspaper, magazine and broadcast interests--without Chandler family approval.

"We feel it is important to maintain the continuity and integrity of our media operations," said Robert F. Erburu, Times Mirror's chairman and chief executive. Because a number of media and non-media companies have taken similar steps, "this seemed an appropriate thing for us to do."

The proposal also could allow the firm to issue new shares without diluting the Chandler family holdings. Times Mirror has been reluctant to issue new stock to finance acquisitions or raise capital because of Chandler family concerns about dilution.

Under the proposal, Times Mirror also would create another new class of stock, called Class B, that could be used to make acquisitions. Class B stock would only have one-tenth vote per share. The company said it intends to pay equal dividends on all three classes of common stock. It currently pays 41 cents per share quarterly.

The move follows similar actions at other media companies, including Dow Jones & Co., New York Times Co. and Washington Post Co. Those firms have created dual classes of stock that give disproportionately higher voting rights to members of their founding families who retain controlling interests.

Could Become Vulnerable

The Times Mirror action follows "several years of increasing volatility in the whole (media) area," said R. Joseph Fuchs, media analyst at the brokerage firm of Kidder, Peabody & Co. "(Corporate) raiders are attacking a number of companies."

The move also comes after the sale of several family-owned newspaper firms, including those that published the Des Moines Register and Louisville Courier-Journal, as a result of bickering among founding-family members.

"You look down the road, and you could see the company (Times Mirror) getting into a vulnerable position," said John Morton, Washington-based media analyst at the brokerage of Lynch, Jones & Ryan. With this plan it is "unlikely that the company will be distracted by takeover attempts in the future," Morton said.

Times Mirror officials, however, said the move was not motivated by any immediate takeover threats.

"We've never received any indication that somebody might be considering a hostile takeover, and there is no expectation of that happening in the future," Erburu said.

Action Defended

Also, the Chandler family trusts are under severe restrictions that would prevent any selling of trust shares for several decades.

Times Mirror officials defended the action as fair to shareholders, because all holders of existing stock would receive Class C stock. The Class C stock would be distributed as a 100% stock dividend, which is similar to a 2-for-1 stock split in that the price of existing shares would probably drop about in half, Times Mirror officials said.

"This is completely fair," Erburu said. "We're issuing stock to everyone equally and everybody has exactly the same opportunity to retain proportional voting rights and even increase it if they want to remain long-term shareholders."

The proposal, however, could face a regulatory snag. The Securities and Exchange Commission is considering a rule that would, with some exceptions, require that companies with stock traded on the nation's stock exchanges provide for one vote per share.

Hearings on the rule may be held this fall, an SEC spokesman said Thursday.

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