Warner Sues to Protect Its Deal With Time

As time nears for the merger of Warner Communications Inc. and Time Inc., the two media giants made a preemptive legal move Friday to neutralize Warner’s biggest and most dissident shareholder, Chris-Craft Industries, which has never publicly swung its weight behind the deal.

With the filing of a Delaware lawsuit, Warner has effectively agreed to allow Chris-Craft to determine the destiny of Warner’s 42.5% stake in Chris-Craft’s BHC broadcasting subsidiary--but it seeks the court’s help in speeding a Chris-Craft decision.

Chris-Craft--which controls about 19% of Warner through its BHC subsidiary--has been viewed as a potential loose cannon because its chairman and largest shareholder, Herbert J. Siegel, has blocked Warner moves in the past. If Chris-Craft is not pinned down, it might be viewed as a potential ally by any third party intent on breaking up the pending merger.

No deal-spoiler has yet materialized, but Wall Street traders and analysts have said that a third party would be unlikely to make its move until after proxy materials are mailed to Warner and Time shareholders--and the mailing is expected shortly. Warner Senior Vice President Geoffrey W. Holmes would not set a date, but noted that both companies “still expect to have shareholders’ meetings in June.”

‘Given Us Everything’

“To some extent, this is a sideshow to the real deal,” said John Tinker, a securities analyst at Morgan Stanley & Co. in New York. “What Warner is trying to do is to make sure it remains a sideshow.”

In a joint press release, Warner and Time said they still dispute Chris-Craft’s interpretation of its BHC contract with Warner, but added, “We are willing to accept their interpretation in order to put this issue behind us once and for all.”

For its part, Chris-Craft is “elated,” said New York attorney Peter Fishbein. “They have now in effect given us everything” that Chris-Craft had been seeking in settlement talks.

Chris-Craft’s Siegel and his advisers are expected to meet over the weekend to determine their next action.

Warner said it would give up any claim of its rights of first refusal to buy BHC’s stock in Warner and will do one of two things at Chris-Craft’s bidding: sell its BHC stake to Chris-Craft at a fair market price or spin the shares off to Warner shareholders. In the latter case, BHC would become a publicly traded company, with Chris-Craft still functioning as the majority shareholder. BHC would wind up with about 11% of Time-Warner Inc. once that merger is completed.

If Warner spins off its BHC shares, Time and Warner said they have agreed to change the proposed ratio of their stock swap. The amount of Time stock issued to Warner shareholders would be reduced to .439 from .465, reflecting the fact that Time shareholders would no longer be getting any interest in BHC. As a result, the value of the deal in current stock prices would be reduced by about $570 million, or $3 per Warner share.

Warner’s legal move appears designed to give both sides a chance to end--in a decorous way--the sometimes-rancorous alliance forged late in 1983 when Chris-Craft came to Warner’s rescue to fight off an unwelcome takeover bid by media baron Rupert Murdoch.