Shares of Time Soar $9.25 Amid Takeover Talk : Speculation About Hostile Offers Before Merger Is Sealed Propels Stock

Times Staff Writer

Time Inc. stock exploded to a $9.25-a-share gain Tuesday amid a fever of speculation that a media conglomerate or other bidder might mount a hostile takeover bid for Time or Warner Communications before completion of their planned merger next summer.

The stock of the magazine and pay-TV giant soared to $116.75 on heavy trading volume of 1.42 million shares, while shares of partner-to-be Warner advanced 62.5 cents to $48.875. Warner’s trading volume of 4.04 million shares made it the most heavily traded stock on the New York Stock Exchange.

The speculation brought a sharp reaction from Warner. “We don’t expect to see any hostile offers--this is a done deal,” said Geoffrey Holmes, a Warner vice president. Time declined to comment.

Time has been the subject of takeover rumors for years, partly because its stock price is about half what some investors believe the company could be worth if its divisions were sold piecemeal.


But though no bidder has emerged to date, “anybody who’d want to buy knows now that it’s going to be a lot more expensive in three or four months when the deal is done,” said Dennis McAlpine, analyst with the Oppenheimer & Co. investment bank in New York. “It’s fish or cut bait.”

One arbitrager, or professional speculator, said interest centered on “the usual suspects,” such as Rupert Murdoch, Australian-born head of the News Corp. conglomerate, and Bertelsmann AG, the West German publishing empire. Both are interested in media acquisitions, and both might feel some competitive pressure if the merged company moved aggressively into deregulated Europe, as it has promised.

Firm Not Interested

Meanwhile, John Malone, chief executive of Tele-Communications Inc., the No. 1 ranking cable systems company, told Dow Jones News Service that the company was not interested in bidding for Time. Some had speculated that the Denver company was a possible bidder because of the complementary fit between its cable systems and Time’s cable interests.


A bidder making a premium-priced all-cash offer could have a strong hand in trying to overcome the stock-swap deal proposed by Time and Warner, analysts and arbitragers said. But the Warner and Time managements also have certain defensive advantages.

When they signed the merger agreement last weekend, Time took control of 10% of Warner shares, and Warner got 12.5% of Time’s. Control of those blocks could be important in any takeover battle.

Also, if an offer were made for Warner, the company has the right of first refusal over a 14% block of Warner voting stock held by its largest investor, Chris-Craft Industries. That right means that Warner--rather than a hostile bidder--could buy the stock from Chris-Craft if Warner chose to do so.

Analyst McAlpine cited other advantages of the Time-Warner deal. Some investors would prefer to receive stock rather than cash, to reduce their tax bills. (The proposed stock swap would be a tax-free transaction, while a cash deal would generate a taxable gain for many shareholders.) And the managements’ emphasis on the “synergies” of the merger will suggest to stockholders that Time’s undervalued shares will rise sharply after the deal, he said.

While the stock’s rise was breathtaking, there was skepticism among many analysts and arbitragers that an offer would materialize. “There’s no hard evidence--there’s not even soft evidence,” said Edward Atorino, an analyst with Smith Barney, Harris Upham & Co. in New York.

Some saw the jump in Time stock as nothing more than evidence that there are few takeover deals for speculators to put their money on at the moment.

Normally in such a situation, Wall Street arbitragers said, Time’s stock price would be falling, and Warner’s would be rising. Speculators would be “shorting” the Time stock--that is, selling borrowed shares today in expectation of being able to replace them later with lower-priced shares.

But rumors of a takeover have been strong enough to scare speculators away from short sales. If a takeover occurred at a higher price, they could be forced to take heavy losses as they bought expensive shares to replace those they borrowed.