Warner May Outwait Cable Unit Bidders

An effort by three companies to pressure Warner Communications to sell its half of a cable-TV venture may have misfired, according to entertainment and financial community sources.

Instead, New York-based Warner appears to have gained the upper hand in a cat-and-mouse negotiation that could enable Warner to determine the ownership of Warner Amex Cable Communications, the nation’s fifth-largest cable-TV operator.

American Express, co-owner of Warner Amex, has publicly urged Warner to accept an $850-million offer from Time Inc. and Tele-Communications for Warner Amex, in addition to the assumption of the venture’s $500-million debt.

Warner, however, has not responded and won’t be compelled to unless American Express offers to buy Warner’s half, triggering a buy-sell agreement that permits Warner to buy out American Express at the same price.

Sources close to Warner refuted a story published Thursday in the Wall Street Journal that Warner is readying its own bid to buy out American Express’ stake.

“The last thing (Warner Chairman) Steve (Ross) is going to do is pull the trigger. It makes no sense,” one executive said.

He and other sources said American Express, Time and Tele-Communications may have overestimated Warner’s need for cash. Until recently, Warner was mired in bank debt from its losses in the video-game and home-computer business, but that debt has been paid off and sources now believe that Warner has the financial resources to buy out American Express, either alone or with a new partner.

“They blew it. They were so sure that Warner was a company without options,” said another executive close to Warner.

With the blessings of Time and Tele-Communications, American Express was on the verge of triggering the buy-sell agreement this week, sources said. The three companies backed off, however, apparently when they perceived the full extent of Warner’s resources and Ross’ inclination to keep the cable investment.

“I don’t think they fully understood the complex person of Steven Ross. At first they just thought he would jump at a chance to cash in his chips,” said one executive who is well acquainted with Time and Tele-Communications as well as Warner.

Even if Ross does not want to buy out American Express, Warner could encourage a bidding war for the cable assets if it continues to hold out. “Cable prices are not going down,” one source said, noting that Time and TCI increased the cash portion of their offer by $100 million after Warner failed to respond to their first offer in May.

Under the terms of the definitive agreement signed June 11, American Express has promised Time and Tele-Communications that it will not entertain other bids for the cable venture for 90 days.

According to a source involved in the negotiations, the agreement also provides that American Express won’t trigger the buy-sell agreement with Warner without the concurrence of both Time and TCI during the first 30 days.

For the following 15-day period, however, Time and TCI could require American Express to trigger the buy-sell agreement to resolve the impasse. Then, in the remaining 45 days, American Express has the sole discretion in making that decision.

Nicholas J. Nicholas Jr., Time’s executive vice president in charge of video operations, declined Thursday in a telephone interview to confirm those aspects of the agreement or to discuss the company’s long-term strategy.

But Nicholas added: “I don’t believe the trigger is going to be pulled today or tomorrow.”

Nicholas also refuted suggestions that Time bypassed Warner to negotiate directly with American Express in putting together its offer or behaved arrogantly in fashioning its offer.

Identical offers were communicated to Warner and American Express at the same time, Nicholas said. “We made a proposal to both companies. American Express agreed, and Warner Communications hasn’t answered. What is arrogant about that?”

At Warner, company vice president Geoffrey W. Holmes said Warner officials received a letter this week from Time and Tele-Communications saying “they made this offer and would like to talk to us. It did not lay out formal terms.” Holmes declined to comment further.