McCaw Cellular Communications, signaling a possible retreat from a takeover proposal that was the largest ever in the cellular phone business, said Friday that it would reconsider its $5.8-billion offer for Lin Broadcasting.
The announcement came after Lin was dealt a major blow by New York Court of Appeals, the state's highest court. The court declared that Lin could not force its partners in its lucrative New York City and Philadelphia cellular telephone systems to sell out to Lin.
Following the ruling, Lin's stock price tumbled $7.125 a share in over-the-counter trading to close at $115.875. The current hostile takeover proposal from Kirkland, Wash.-based McCaw amounts to $120 a share.
In a prepared statement, McCaw Vice Chairman Wayne M. Perry said company officials hadn't seen the court decision, but "when we do, we plan to review it carefully with our advisers and consider the options available to us."
The company said it has the right to amend its offer in the event of "any adverse development" in the pending litigation.
Analysts had estimated that Lin's value might rise as much as $40 a share if the New York-based cellular telephone and broadcasting concern prevailed in its court battle with Metromedia Inc. Metromedia and Lin were partners in two firms serving the New York and Philadelphia areas, and each had the right of first refusal to buy the other out, should one partner decide to sell.
Metromedia initially decided to sell its holdings in the two companies to Southwestern Bell, and notified Lin to give it the chance to exercise its right to buy the shares. Before Lin acted, however, Metromedia reversed itself and decided not to sell to Southwestern Bell. But Lin, which also holds 35% of Los Angeles Cellular Telephone, contended that it still had the right to buy Metromedia's shares in the two companies for $380 million.
Friday's court decision, which upheld a lower state court ruling, said Lin's legal arguments tried to equate a right of first refusal with an option to buy.
Lin's share price initially soared 25% above McCaw's offer on speculation that a competing offer for Lin might emerge in light of Lin's valuable interest in cellular systems in Los Angeles, New York, Dallas-Ft. Worth, Houston and Philadelphia. However, the stock fell back after a competing bid failed to appear. Friday's 17% drop was apparently precipitated by fears that McCaw might revise its offer and by dampening hopes that another buyer would appear.