Time Inc. and Warner Communications Inc. confirmed Saturday that they have agreed to merge, creating a world power in the field of media and entertainment. The merger, in which Time will acquire Warner, was valued at $18 billion.
The new company will own the nation's most lucrative recorded music and magazine publishing businesses, the largest television programming operation for both pay-cable and prime-time network television, and cable TV franchises second only to Tele-Communications Inc. of Denver.
Time brings to the combination not only its namesake Time magazine, but other publications such as Life, Fortune, People, Money and Sports Illustrated. It also controls the second largest cable system in the United States, American Television and Communications, and Home Box Office, the nation's largest cable programming service, which includes HBO and Cinemax. Time also maintains a significant presence in book publishing with its Book-of-the-Month Club, Time-Life Books and Little, Brown.
Warner Communications owns one of the nation's most successful motion picture studios, Warner Bros., and recently acquired Lorimar Telepictures Corp., a pre-eminent supplier of television programs such as "Dallas" and "Falcon Crest." Warner's record labels include Atlantic, Elektra, Asylum and Nonesuch and its publishing operations include such off-beat assets as DC Comics and Mad Magazine.
An Awesome Giant
The reaction in Hollywood and on Wall Street was one of awe at the scope and influence of the combined company--to be called Time Warner Inc.
Industry executives said the size of the new entity should enable it to fend off unwelcome takeover bids, but there remained some question about whether other bidders might emerge for Time Inc., which is considered a corporate plum.
The overall merger requires shareholder approval, but on Saturday, Warner and Time directors used their power to exchange smaller blocks of their company's common stock to discourage hostile bids. Time has exchanged 12.5% of its shares for about 10% of Warner's, in a deal effective immediately.
As reported by The Times Saturday, the actual merger will involve an exchange of stock that--at Friday's closing prices--places a value slightly in excess of $50 on each Warner share. Each Warner share will be exchanged tax-free for a .465 share of Time Inc. common stock.
For the near future, Time and Warner's current chairmen--J. Richard Munro and Steven J. Ross, respectively--will share the office of chairman and chief executive. Ross said they have not discussed whose mid-Manhattan tower will function as headquarters.
Some analysts expressed surprise that Warner sought the merger, because they believe its stock value could appreciate more rapidly on its own. But one analyst called the move a "career capper" for the 61-year-old Ross, who co-founded Warner in 1961.
Ross rose from managing "parking lots . . . and now he is the head of the greatest media company in the world. I mean, give me a break!" said one securities analyst.
The heir apparent to Time Warner's top job is Nicholas J. Nicholas Jr., 49, currently Time's president who will also be president of the combined company. He will become Time Warner co-chief executive upon Munro's expected retirement sometime in the next two years.
Nicholas had already been tapped as Munro's successor at Time, and that pre-selection solved a problem for Ross, who by his own admission has had difficulty selecting a successor at Warner. Under the terms announced Saturday, Ross will serve as co-chief executive for the next five years. When the five-year period ends, Ross will continue to serve as chairman of the board and Nicholas will become the lone chief executive.
On another front, the merger enables Ross to dump Chris-Craft Chairman Herbert J. Siegel--his largest and most dissident shareholder--from the Warner board. Even though Chris-Craft will emerge as one of Time Warner's largest shareholders, it appears incapable of seizing a seat on the new 24-member board, made up of 12 nominees from each company. Warner will not invite Siegel to join the new board, sources said Saturday. The Chris-Craft chairman could not be reached for comment.
In interviews, Ross and Munro disclosed that they have been privately discussing the wisdom of combining some or all of their businesses for nearly two years. Ross said he dreamed up the idea of combining their cable TV systems, Warner Bros. studio and Time's Home Box Office, and made the first overture in 1987.
Sometime last year, Time took the initiative and proposed a complete merger, but talks stalled over the question of who would emerge as managers.
"That's exactly right. Everything else is a slam-dunk," said Munro, who spent 12 years at Sports Illustrated during his 31-year career at Time.
So artful is the deal's design that reaction split in Hollywood and financial circles as to which company emerges with the upper hand.