As in any good drama, tension mounts as the proposed merger of Time Inc. and Warner Communications nears a shareholder vote on June 23. The clock is running fast for suitors who hope to derail the deal.
Time's stock seesawed wildly during the week, gaining $3 on Tuesday, only to fall $8 the next day. On Friday, Time shares tumbled $4.125 to close at $123, down from the 52-week high of $135.50 established just four days earlier.
Wall Street now appears skeptical that a rival bid will materialize or succeed, even though some big investors and investment bankers would relish an upset. Attention has focused on the vulnerability of Time because, as one investment banker put it, "Time is basically getting the short end of the stick."
The banker, noting that Warner shareholders will wind up owning 62% of the resulting company after the exchange of shares, contends that Time's "real value is up around $200 a share. But it is becoming less and less likely (that) its shareholders (will) ever realize the true value."
Hollywood entrepreneur A. Jerrold Perenchio and cable TV pioneer Charles F. Dolan have emerged as the most visible candidates trying to raise money to bid for Time, which could cost in excess of $10 billion. The Perenchio group has been contacting potential investors for nearly two months and has tried to enlist a major Hollywood studio as a partner within the past two weeks, according to sources in Los Angeles and New York.
So far, it doesn't appear that any of the major studios have accepted the invitation, but the enlistment of a single deep-pocketed player could tip the scales, according to one chief executive who said he turned Perencho down. "My understanding is they've got most of the debt lined up," the executive said.
Defends Merger Terms
Perenchio and Dolan have not commented publicly, and all of the Hollywood and Wall Street executives spoke on condition that they not be identified.
But Time and Warner officials have bristled over the effect of the published reports. If the fund-raising efforts of Perenchio and Dolan have been accurately reported, "they should receive an A-1 reward for tenacity, but unfortunately they have really caused the market price to fluctuate with the rumors," Warner Chairman Steven J. Ross declared Friday.
Ross also vehemently defended the terms of the merger. "Time has made a fantastic deal for its shareholders," the Warner chairman said. "It is merging with a company (that received) 40% of its revenue from the international arena (while) 10% of Time's came from there. In order to have strong growth abroad, Time is going to need the strong Warner distribution setups and arrangements."
Sources outside Warner and Time contend that the two companies have made threatening noises to General Electric, the parent company of GE Capital, which has been widely identified as the likely source of debt financing for the Perenchio group.
Time and Warner are apparently prepared to argue that GE's debt financing would in truth more closely resemble an equity stake in Time and its cable TV systems, thereby violating federal rules which prohibit ownership of both cable and television networks. GE, through its RCA subsidiary, owns the NBC television network.
Praises From Wilson
Meanwhile, luminaries in the entertainment and political world are stepping forward to praise the Time Warner deal.
Film maker Steven Spielberg, who has counted Warner's Ross a close friend, issued a statement Friday which seemed designed to discourage a foreign bid. "A lot of what I portray in my films comes from my upbringing as an American, and frankly, I think the consummation of Time Warner Inc. insures that there will be a strong American company to compete in this new global economy," Spielberg's statement read in part.
Sen. Pete Wilson (R-Calif.) praised the merger because both companies are financially strong and overlap in few areas. "I have every reason to think they would continue to employee the hundreds of employees they have in California," Wilson said in a telephone interview from Washington.