Troubled Lorimar Agrees to Merge With Warner

Lorimar Telepictures Corp. said Tuesday that it has agreed in principle to be acquired by Warner Communications Inc. in a $619-million stock swap that would end two years of financial strain for the leading television programmer.

Lorimar and Warner, which only last month broke off merger talks, said they had agreed on the combination after a second look at the deal and some tinkering with terms. “In the clear light of day, it seemed like it made sense,” Steven J. Ross, Warner’s chairman and chief executive, said in an interview.

The deal would create a potent entertainment conglomerate with annual revenue of about $4.1 billion and an important position in movies, television programming, records and cable. Warner will assume about $550 million of Lorimar debt as part of the deal.

Lorimar, best known as the producer of such prime-time soap operas as “Dallas” and “Falcon Crest,” has itself faced travails worthy of a soap opera in recent years. Operating losses in its film and home video divisions have stirred conflict in its executive suite; the Culver City company has reported losses in six consecutive quarters, though its network and syndicated television programming have been highly profitable.

Last year, executives in Lorimar’s home video division resigned amid allegations of improper accounting practices and conflict of interest in relationships with Lorimar suppliers.

Many analysts have seen New York-based Warner as a desirable partner for some time. Financially strong, Warner has sought to expand its presence in television programming.

Lorimar officials “must have taken another look into the dark, dreary unknown and saw this as their best option,” said Jeffrey Logsdon, an analyst with the investment firm of Crowell, Weedon & Co. in Los Angeles.

Under the proposed deal, Lorimar shareholders will receive 0.415 common shares of Warner stock for each of their shares. The deal would be worth about $13.64 a share, based on the price of Warner stock, which closed Tuesday at $32.875 a share, down 75 cents.

The agreement in principle also provides that Merv Adelson, Lorimar’s chairman, co-founder and largest shareholder, will become vice chairman of Warner. The three executives in Lorimar’s “office of the president,” David E. Salzman, Richard T. Robertson and Michael Jay Solomon, will join the combined company, officials said, as will film division head Bernie Brillstein.

Some analysts speculated that Lorimar reconsidered the deal after hearing new rumbles suggesting the possibility of an unsolicited takeover attempt. Marvin Davis, the Los Angeles oilman and investor, said in March that he would pay $17 a share for Lorimar stock provided he could first review the company’s books. The request was declined.

More recently, other names have popped up as possible hostile takeover bidders, including that of Wesray, the investment firm headed by former U.S. Treasury Secretary William E. Simon, analysts said.

But in an interview, Adelson maintained that perceived takeover threats had “nothing to do with it. . . . Our (investment) bankers just got together and got us to take another look.”

The proposal merger leaves open certain escape hatches. Lorimar is entitled to cancel the deal if the transaction--based on the price of Warner stock--is worth less than $15 a share to Lorimar holders as it nears completion in late summer. Warner would be paid a $10-million fee if the merger were broken off in such circumstances.

Also, if Lorimar were to accept a takeover offer from another company before the close of the transaction, Warner has an option of buying 18.5% of Lorimar’s shares at a price of $15 each.

Despite such language, Ross and Adelson insisted that they expect the deal will be consummated. “As far as I’m concerned, it’s a done deal,” Ross said, in sentiments that were echoed by Adelson.

Ross and Adelson said they resumed their conversations about the deal by telephone last Friday, at the suggestion of their investment bankers. Lazard Freres represented Warner in the negotiations, and Drexel Burnham Lambert represented Lorimar.

Lorimar’s stock closed down 37.5 cents at $12.75. With 711,500 shares changing hands, it was the most heavily traded stock on the American Stock Exchange.

While the deal was thus clearly disappointing for some shareholders, several Wall Street analysts praised it because of Warner’s growth prospects and the possibility that its stock will increase in value. “Warner’s stock has a proven, long-term track record,” said analyst Logsdon.

Holdings Diluted

Only last week, Warner Chairman Ross told security analysts in New York that the company was still interested in a deal with Lorimar, Logsdon noted. Ross said Warner’s review of Lorimar’s books had revealed nothing that lessened Warner’s interest, Logsdon said.

Logsdon said the deal will serve another of Ross’ goals by further diluting the holdings of dissident Warner shareholder Herbert J. Siegel, who is chairman of Chris-Craft Industries. With the stock swap, Siegel’s stake will decline to about 15% from a current 17%, he estimated.

Lisbeth R. Barron, an analyst with the Balis Zorn Gerard investment firm in New York, said the deal would prove highly profitable for Warner if another offer does surface. If Lorimar were acquired for $17 a share, for example, Warner would take away the $10-million fee and $20 million from its right to purchase an 18.5% stake for $15 a share, she said.

Barron noted that Adelson, who holds 11% of Lorimar’s stock, will hold about 1% of Warner’s stock if the deal is completed. With that stake, he will hold about as much as Ross, she said.

Lorimar’s board of directors approved the agreement in principle at a meeting Tuesday morning. Warner’s board may take up the proposal next week, said Geoffrey W. Holmes, a Warner vice president and spokesman.

Resigned Friday

Still unclear is how important a role Adelson will have in the new company. Adelson, who is the husband of television journalist Barbara Walters, has proven a forceful personality at Lorimar and was expected to insist on a major role in any new organization.

Sources speculated that the deal must have had little appeal for Michael N. Garin, a former member of the Lorimar office of the president who announced his resignation last Friday, saying he preferred to stay in New York as the company concentrated its operations in Southern California. “From the timing, it looks like either he didn’t like the new role they offered, or they didn’t offer him anything,” said one observer knowledgeable about the company.