Paramount Bids $10 Billion for Time Inc.

A $10-billion bid was launched late Tuesday for Time Inc. by the corporate parent of Paramount Pictures, less than three weeks before Time shareholders are due to vote on a merger with Warner Communications Inc.

The unfriendly bid sent shock waves through the Hollywood community because no major studio in recent memory has attempted to foil another major studio’s acquisition. Warner Communications is the parent of Burbank-based Warner Bros. studio and recently became Paramount’s partner in the ownership of movie-theater chains.

Offers $175 a Share

Paramount Communications Inc., which changed its name this week from Gulf & Western Inc., said it will offer $175 in cash for each Time share, about 60% more than Time’s trading price prior to the March announcement of the non-cash merger with Warner.

The cash offer from such a pre-eminent company seems likely to derail the Time-Warner deal in its current form. Warner’s strong entertainment assets, combined with its proven ability to do business overseas, had provided the greatest attraction to Time, but now a similarly bejeweled suitor has appeared at the altar.

“It’s a new ballgame as of right now,” said one investor, predicting that Time stock will soar $60 when trading opens on the New York Stock Exchange today. On Tuesday, the stock closed at $126, up $2.75 a share.

For Warner, the news appeared to be a terrible blow. The deal had been widely viewed as a “career capper” for Warner chief executive Steven J. Ross, who stood to gain an estimated $88 million when the merger took place, as well as the title of chairman of the new company for the next decade. Warner shareholders had been overjoyed because they would have wound up owning 62% of the Time-Warner company.

“Steve made too good a deal, and he put Time in play,” one entertainment company executive said. “I’m surprised it took them this long.”

Few entertainment or financial executives were willing to comment publicly Tuesday night, but CBS Chief Executive Laurence A. Tisch said: “Everybody knows it was a bad deal for Time shareholders . . . . I thought there was a good chance that someone would come in.”

Tisch added, however, that Time and Warner “have a lot of defenses in place and they have great lawyers . . . . I think it’s going to be a titanic struggle.”

Unlike Warner, Paramount has no holdings in recorded music or cable television systems, but it has vast publishing assets, including Simon & Schuster, Prentice Hall and Pocket Books.

Warner and Paramount have excelled in motion picture production, consistently ranking among the industry’s top three box-office performers over the last decade. Paramount, with its current hit of “Indiana Jones and the Last Crusade,” has taken this year’s lead, but fourth-ranked Warner is expected to profit handsomely with its upcoming “Batman” film.

In television programming, however, Warner has pulled ahead with its acquisition of Lorimar Telepictures earlier this year.

Counterattack Possible

A source close to Time and Warner had observed last week that, if a publicly traded company tried to wreck the proposed merger, the two companies would have the financial resources to mount a counterattack by offering to buy the interloper. Time also has the borrowing capacity to make a tender offer for Warner.

Late Tuesday, however, Time’s representatives would not tip their hand about what the next move might be.

Efforts to reach Warner’s Ross were unsuccessful.

Martin S. Davis, the 61-year-old Paramount chairman and chief executive, said he telephoned Time Chairman J. Richard Munro with his offer late Tuesday, after the market closed.

Time confirmed that it had received the Paramount bid and immediately labeled it “hostile . . . in contradiction to explicit assurances Mr. Davis had previously given Mr. Munro.”

“Mr. Davis’ proposal will be reviewed by Time’s board, as required by law. In the meantime, Time Inc. is advising its shareholders not to do anything until they hear from Time,” the Time statement said.

Davis, who took Gulf & Western’s helm in 1983 after the death of its founder, Charles G. Bluhdorn, said Tuesday night that he doesn’t view his company’s bid as hostile.

“I don’t consider it unfriendly. They have put themselves in play by, in effect, giving 60% to Warner at a (significantly) different price,” Davis said in a telephone interview from his New York headquarters.

Davis volunteered the information that he had had “conversations with Time last year, maybe the year before” about the possibility of combining the two companies, but that Time’s top management had concluded that it would not favor such a combination.

Davis said he had given no recent assurances that he would not bid for Time.

In his earlier conversations with Time, “they said they wanted to retain their independence, and I respected that and I assured them at that time that we were not going to do anything hostile,” the Paramount chairman said.

But he reiterated his view that Time had effectively put itself up for sale with the agreement to merge with Warner.

Just two months ago, Gulf & Western said it intended to sell its finance subsidiary, which accounted for 40% of its 1988 revenue, to concentrate on its entertainment and publishing businesses.

To underscore that decision, the company was renamed to honor its core asset of Paramount Pictures, the motion picture and television production company headquartered in the heart of Hollywood.

The corporation’s other assets include Canada’s Famous Players Theatres, New York’s Madison Square Garden and Cinamerica Theatres, the partnership with Warner that operates 463 screens in nine states through the Festival, Trans-Lux and Mann chains.

The sale of the Dallas-based finance unit--Associates First Capital Corp.--has not occurred, nor have the prospective buyers been publicly identified, but a Paramount spokesman said Tuesday that the sale is proceeding. At the time of the April announcement, one Los Angeles securities analyst estimated that the subsidiary might sell for as much as $2.5 billion to $3 billion. For the fiscal year ended Oct. 31, 1988, Associates reported revenue of $2.05 billion.

Gulf & Western’s combined operations generated total revenue of $5.11 billion in its last fiscal year, with net income of $385 million.

In contrast, Time reported $4.5 billion in revenue and $289 million in net income for last year.

The companies both have giant holdings in publishing but overlap primarily in educational publishing. “We’re not going to worry about that,” Davis said Tuesday.

In addition to its namesake Time magazine, Time’s other publications include Life, Fortune, People, Money and Sports Illustrated. It owns Home Box Office, the nation’s largest cable programming service, and controls the second-largest cable system in the United States through its 82%-owned subsidiary, American Television & Communications Corp.

Davis said “there may be some overlap” in territory served by Time’s cable systems and the television stations Paramount is currently acquiring, but the Paramount chairman insisted: “There’s nothing that can’t be worked out.”

Federal rules prohibit the cross-ownership of television stations and cable TV systems serving the same local market.

Earlier this week, Paramount said it had agreed to acquire rights to buy a majority investment in TVX Broadcast Group, which owns eight independent television stations, of which three have been designated for sale. TVX intends to retain the stations in Philadelphia (WTXF), Washington, D.C. (WDCA), Houston (KTXH), Dallas (KTXA) and Raleigh-Durham, N.C. (WLFL).

Paramount said it would formally begin its tender offer today and added that Citibank has promised to provide $1 billion of senior bank debt financing for the offer. In addition, Citibank has said it is highly confident that it can put together a syndicate of lenders to provide the balance.

When the Time-Warner deal was first announced, the value of the combined companies was put at $18 billion (including debt), but the value climbed to $20 billion as the price of Time stock rose. Under the terms of that deal, each Warner share would be exchanged tax free for a .465 share of Time stock.

Shareholders of Time and Warner are scheduled to meet on June 23 in separate meetings in New York City.