Emerges as Largest Known Buyer of Firm’s Stock : JMB Realty Has 11.69% Stake in Viacom

A partnership led by Chicago realtors surfaced Thursday as the largest known buyer of Viacom International’s stock, amassing a stake of 11.69%. But the group--led by several JMB Realty executives--confounded Wall Street with the added disclosure that it has dropped a once-considered takeover plan and may sell its Viacom shares.

Expectations of an imminent bid for the entertainment and cable-TV company were further defused by the JMB group’s disclosure that it holds options to buy Viacom shares from two New York investment groups, including principals of Coniston Partners.

Earlier this week, Wall Street sources had identified Coniston as a Viacom investor with just under 5%, perhaps capable of triggering a sale of the company, as it did earlier this year with Storer Communications.

The JMB group identified the investment firm of Tweedy, Browne Inc. as the second firm that had granted it options for 225,000 shares of Viacom. JMB included the options in calculating its Viacom stake.

JMB said in a filing with the Securities and Exchange Commission that it was “giving consideration” to a plan to acquire control of Viacom at the time that it bought some of the shares. But later it decided “not to proceed with any such proposal,” the filing said.

After the morning disclosures, Viacom’s stock price tumbled $6.125 to close at $57.375, as 2.54 million shares traded on the New York Stock Exchange. It was the Big Board’s fourth most active issue.

Privately, one Viacom official expressed relief over Thursday’s turn of events. “Coniston looks like a seller now,” he said.

Echoing some securities traders, the Viacom executive said he believed that JMB partners “got their fingers burned” by buying up large amounts of Viacom shares at high prices early this week, only to have their 13.45% stake diluted by Viacom’s successful offering of 2.5 million new shares Wednesday.

Traders said they suspected someone of trying to derail the Viacom offering on its eve with the large volumes recorded Tuesday. The underwriters countered by pricing the new Viacom shares below market at $58.50 and succeeded in selling the new shares.

According to documents filed at the SEC, the JMB group bought 827,000 shares--or about 4.7% of Viacom’s then-outstanding shares, on the eve of the stock offering at prices ranging from $59.25 to $63.

Some portfolio managers, such as Morris Smith at Fidelity Investments in Boston, sold some Viacom shares at the peak prices recorded Tuesday and Wednesday and are holding the remainder with a wait-and-see attitude.

By Smith’s calculation, the JMB group will feel compelled to “maximize (its) return on investment.”

Viacom is “definitely in play,” the portfolio manager said. “There’s no other way of looking at it.”

Although well established in the real estate investment business, JMB Realty is a newcomer to the cable-TV industry. The 16-year-old Chicago firm began contacting cable-TV companies and analysts earlier this year about possible investments. JMB executives asked Heritage Communications about the feasibility of buying its Dallas cable-TV system partnership and approached Viacom with the idea of bidding jointly for certain Group W cable-TV systems, according to one source.

However, Viacom General Counsel Ronald Lightstone declined to say whether Viacom and JMB had held such conversations. JMB Realty President Neil G. Bluhm has not returned a reporter’s phone calls the past two days.

‘Investment Only’

Lightstone said, however, that Viacom officials talked to the JMB group Thursday. “They advised us that they’ve acquired (the shares) for investment only . . . we don’t have any reason to doubt that.”

According to the SEC filing, the JMB group holds an option to buy 390,000 Viacom shares, or nearly 1.9% of Viacom’s outstanding shares, from the Coniston principals, who hold the stock in a partnership called Gollust, Tierney & Oliver. Paul Tierney, a principal, declined Thursday to say whether his group still controls other Viacom shares, as one investment community source maintains.

Tierney acknowledged that Coniston will soon reap a $40-million profit from its Storer investment, which could be reinvested immediately. But he cautioned that people would be “wrong to imagine there is a real tie-in” with any Viacom holdings.

“We are by no means a media partnership,” Tierney said, disclosing that Viacom is the only media stock currently held by his group.