Warner Shareholders File Suit to Block Merger With Time

A group of Warner Communications Inc. stockholders charged in a lawsuit filed Wednesday in a Delaware court that a proposed merger with Time Inc. is an illegal scheme to block any outside takeover of Warner.

Meanwhile, Warner and Time shares skidded as takeover talk dimmed.

West German publisher Bertelsmann AG said it was not interested in seeking either Time or Warner, and industry analysts saw no other serious threats. In New York Stock Exchange trading, Time fell $1.875 to $114.875 and Warner declined $1.125 to $47.75 after rising in previous sessions on talk of outside offers emerging.

The Warner shareholder suit, filed in Delaware’s chancery court, seeks to block the companies from proceeding with a so-called lockup provision in which Time will exchange 12.5% of its stock for 12% of Warner’s shares.

The provision was part of the agreement under which Time and Warner plan to swap shares and merge into what would be the world’s largest media and entertainment company, with a market value of $18 billion.

Court records also showed that two more shareholder suits have been filed challenging the merger, including one naming Time and Warner and another naming just Warner. No other details were available immediately. The suits could later be consolidated.

Time and Warner agreed to vote each other’s shares in support of the merger or in case of a proxy fight for control of Warner. This, together with Warner director share holdings, would effectively block any outside takeover of Warner, the shareholders said.

The suit charged that by blocking an outside takeover, Warner is preventing its stockholders from receiving a fair price for their shares. It noted that Time and Warner have each been a rumored takeover target in recent years and that it “is generally believed that (their) merger would make them a difficult takeover target.”

“The merger and lockup transactions are nothing more than a plan and scheme by the (Warner) director defendants to entrench themselves,” argued the shareholders, Bernice Berger, Harold Sachs, Joseph Kovacs and Kathleen Pessin.

The shareholders said in a 12-page court document that Time and Warner are “engaged in a conspiracy and are substantially and knowingly aiding and abetting each other in carrying out this unlawful scheme.”

Analysts had been predicting lawsuits because some shareholders were disappointed that a more lucrative offer did not emerge for either of the companies, whose underlying asset values are estimated at as much as twice their current stock market value.

In a related development, the House Judiciary Committee announced that its subcommittee on economic and commercial law will hold a hearing on the proposed merger on Tuesday.