THE BIDDING FOR TIME : Speculation Rife About Vulnerability of Suitors

The battle for Time Inc. intensified Thursday amid heavy stock trading and predictions that the fight ultimately will cost Time and its suitors their independence.

The stock prices of both Time’s friendly merger partner, Warner Communications Inc., and the hostile bidder, Paramount Communications Inc., climbed to new heights, while Time shares fell $2 to $168 at closing.

Stock in Warner rose $3 to $56.50, and Paramount stock surged $3.62 1/2 to $58.37 1/2.

Some speculators appeared to be taking their profits out of Time stock and investing in Warner and Paramount on the belief that the two entertainment companies are now vulnerable to takeover bids themselves. One Wall Street veteran declared: “In 18 months, all three companies will be history.”

Meanwhile, Time’s chairman fired off a scathing letter to Paramount Chairman Martin S. Davis, and rumors of a Time board meeting in New York prompted some sources to conclude that Time might take action as soon as it learns the outcome of a Delaware court hearing at which some of Time’s defense mechanisms will be tested.

A number of Wall Street sources were wagering that Time and Warner would try to proceed with the merger but abandon their original no-cash deal in favor of offering shareholders a recapitalized company and a big dividend.

‘Ill-Conceived Deal’

But should another cash bid for Time surface to drive the price significantly higher than the $175-per-share now on the table from Paramount, another scenario holds that Time must acquiesce.

There was no acquiescent tone to Time Chairman J. Richard Munro’s Thursday letter, in which he attacked the integrity of Davis’s word and accused him of staking Paramount’s future “on an ill-conceived deal that is cynical if not downright deceptive.”

George Sard, a Paramount spokesman, said the company would not comment on the letter, but one member of the Paramount team called it a “crybaby” defense.

Munro wrote: “On a personal level, I’m disappointed that I can’t rely on you as a man of your word. Live and learn.”

The Time chairman apparently was alluding to Paramount’s promise in years past that it would respect Time’s independence. This week, however, Davis has said that Time in effect put itself up for sale when it announced its plan to merge with Warner in a non-cash deal.

Munro also alluded to Paramount’s former corporate name, Gulf & Western, and reputation in the heyday of founder Charles Bluhdorn, who died in 1983. “You’ve changed the name of your corporation but not its character: It’s still ‘Engulf and Devour,’ ” Munro wrote.

In the three-page letter, however, Munro gave no clue as to just how Time might respond to the tender offer.

While Wall Street gossips continued to speculate that another suitor might emerge to top Paramount’s bid, no new names were mentioned.

“My instincts tell me that Marty Davis is not going to get this company,” one investment research executive said. “It’s got to be private. I don’t know how any public company lives with this deal.”

Because Time’s market value now exceeds $10 billion, any buyer most likely would need to assume enormous debt. “You don’t have any free cash to do anything. You spend your life paying off interest and debt. It makes you less able to compete,” the executive said.

Investment banker Alberto Cribiore said he, too, has concluded that Time is being driven to the auction block.

Cribiore, who was a senior Warner executive before joining Clayton & Dubilier Inc. in 1985, said he had been cheering unabashedly from the sidelines for the Time-Warner merger

$375 Million in Bankers’ Fee

“It’s too bad for the U.S. communications industry that this deal is not going to happen. It was a great, great strengthening or building of a major powerhouse in cable TV, publishing, records, Home Box Office and the theatrical business,” he said.

Paramount, however, has styled itself as an equally attractive suitor because of its motion picture studio and numerous publishing houses.

Because of the nature and geographic location of those assets, Paramount presumably has clout with the same New York and California politicians who earlier praised the Time-Warner merger, thereby defusing objections from that quarter.

Nor is Paramount likely to tangle with the largest shareholder of Time and Warner because that same institutional investor--Capital Research Co. of Los Angeles--is Paramount’s largest shareholder.

Before the Paramount tender offer, Capital Senior Vice President Gordon Crawford had praised the Time-Warner proposal. On Thursday, however, Crawford said: “We’ll have to wait to see what happens. We haven’t seen all the proposals yet.”

In its tender offer, Paramount said it will pay bankers’ fees of nearly $375 million if its offer for 100% of Time shares succeeds. Paramount has agreed to pay about $350 million to Citibank for lining up the $14 billion that Paramount believes ultimately will be required. In addition, Paramount said it would owe about $23.5 million to its investment banking firm, Morgan Stanley & Co.

The document also disclosed Paramount’s intention to buy the 18% stake in American Television and Communications Corp., the nation’s second-largest cable TV company, which Time sold to the public in 1986.

MAJOR HOLDINGS Paramount

Paramount Pictures Corp.

Paramount Pictures

Paramount Television

Paramount Home Video

Famous Music

Wilshire Court Productions

Famous Players Inc.

Madison Square Garden Corp.

Madison Square Garden Center

Madison Square Garden Network

New York Knicks

New York Rangers

Prentice Hall

Simon & Schuster

Pocket Books

Prentice Hall Canada

Webster’s New World (reference)

Arco (test preparation)

J.K. Lasser (tax)

Prentice Hall Press

Betty Crocker (cookbooks)

American Express (travel)

Baedeker (travel)

Frommer (travel)

Mobil Travel Guides

Interests in:

Cinamerica Theatres

United International Pictures

Cinema International Corp.

CIC Video

CIC/UA Cinemas

USA Network

Int’l. Advertising Sales

Pending interests in:

TVX Broadcast Group

WTXF-TV (Philadelphia)

WDCA-TV (Washington)

KTXH-TV (Houston)

KTXA-TV (Dallas)

WLFL-TV (Raleigh-Durham, N.C.)

Time Inc.

Home Box Office

Cinemax

HBO Video

American Television & Communications Corp.

Time

Fortune

Sports Illustrated

Money

People

Life

S.I. For Kids

Student Life

Asiaweek

Yazhou Zhoukan

Southern Living

Progressive Farmer

Southern Accents

Cooking Light

Travel South

Time-Life Books

Time-Life Music

Little, Brown and Co.

Book-of-the-Month Club

Oxmoor House

Scott, Foresman

Interests in:

McCall’s

Working Woman

Working Mother

Parenting

Baby

Hippocrates

President

Fortune France

Fortune Italia

Time Distribution Services

Whittle Communications

American Family Publishers

Sources: Time Inc. and Paramount (Gulf & Western) annual reports.