THE BIDDING FOR TIME : Shares of Time Spurt $44 as Sides Weigh Options, Begin Legal Skirmishing

Trading of Time Inc. shares exploded Wednesday, soaring $44 a share on news that Paramount Communications Inc. had launched its hostile $10.7-billion offer for the stellar media company that had intended to merge with Warner Communications.

Time and Warner remained silent throughout the day, although the initial shock of the unfriendly bid from a “sister” media and entertainment company appeared to be wearing off. Time and Warner officials met with their advisers and considered their options, which appear myriad if less desirable than their original plan to merge in a tax-free exchange of shares.

Time, for example, could launch its own bid for either Warner or Paramount, or even attempt to go private. Warner has a similar borrowing power and could become the suitor for Time or Paramount, or go private. But all of those options require a massive assumption of debt, which will depress earnings and leave some shareholders irate.

All 3 Reported in Play

For the near term, Time and Warner appeared determined to sit tight, engaging in legal skirmishes in Delaware and New York. Warner filed a lawsuit late Wednesday against Citibank, which has promised to help raise as much as $14 billion for Paramount’s takeover effort, while in Delaware, Paramount sued both Warner and Time to forestall the triggering of certain defense mechanisms.

Without question, however, professional Wall Street traders declared all three of the New York-based companies “in play.” The situation has created a field day for speculators, who see no way Time and Warner can proceed with their stock-swap deal in the face of Paramount’s cash offer to pay $175 for each share of Time, which closed at $170 Wednesday.

“I really believe Warner is in play,” said one securities analyst who spoke on condition that he not be identified. By doing the Time-Warner deal in the first place, the analyst said, “the management of both companies have indicated that they’re nervous or afraid.”

Several analysts agreed that Warner has become more vulnerable since it recently relinquished its hold on its largest and most truculent shareholder, Chris-Craft Industries--owner of about 19% of Warner on a fully diluted basis.

To smooth the way for the Time-Warner merger, Warner agreed to give up its rights of first refusal to buy Chris-Craft’s holdings if Chris-Craft should decide to sell its stake. Warner also agreed to dispose of its 42.5% stake in a Chris-Craft broadcasting subsidiary. The settlement liberated Warner from a potential Chris-Craft challenge to its merger with Time on grounds that Warner would have been in violation of federal cross-ownership rules if it owned both TV stations and cable systems in the same markets.

More than 5.7 million shares of Time changed hands Wednesday on the New York Stock Exchange. Warner saw nearly 7.1 million shares change hands, or nearly 4% of its capitalization, while Paramount saw nearly 6.1 million shares traded, or 5% of its total shares. The day’s trading in all three stocks exceeded $1.5 billion in value.

Fueling the frenzy is the possibility that another bid for Time may emerge since the “breakup” value of the media company has been put at between $180 and $220 a share.

Hollywood entrepreneur A. Jerrold Perenchio and cable TV pioneer Charles F. Dolan have been trying to enlist a deep-pocketed investor such as another studio, while a group led by Texas billionaire Robert M. Bass appears to still hold a sizable block of Time stock.

Although one source said the Bass group tried unsuccessfully to team with Paramount more than a month ago to launch the takeover bid for Time, there were indications Wednesday that Bass now would consider only a “white-knight” role, similar to the one played by Bass and his brothers in 1984 when the Walt Disney Co. fended off two hostile takeover bids.

Basses Seek Bargains

The Basses have a reputation for seeking bargains and typically have not engaged in auction bidding, which is where Time appears to be heading, explained one entertainment industry source.

Others, on the sidelines, are trying to fathom just what role--if any--they might play. “The thing that you have to worry about in these things is that you don’t get shot,” declared one entertainment company chief, who also remarked on the number of top investment and legal firms engaged in the fray.

Time’s investment bank advisers are Wasserstein Perella & Co. and the Shearson Lehman Hutton Inc. unit of American Express Co. It has retained the law firms of Cravath, Swaine & Moore and Skadden, Arps, Slate, Meagher & Flom.

Warner’s investment bankers are Lazard Freres & Co. and Alpine Capital, and its law firms are Paul, Weiss, Rifkind, Wharton & Garrison and Wachtell, Lipton, Rosen & Katz.

Paramount, which changed its name this week from Gulf & Western Inc., has retained Morgan Stanley & Co. as its investment banker and Simpson Thatcher & Bartlett as its legal adviser.

All are based in New York.

Paramount wasted no time Wednesday suing Time and Warner in Delaware Chancery Court to halt an exchange of stock that might make the Paramount takeover bid prohibitively expensive. Paramount also challenged Time’s so-called “poison pill” plan and asked the court to rule that Paramount’s offer to acquire Time does not constitute an unlawful interference with Time’s contract with Warner. The judge delayed hearing the case until Friday.

In New York, meanwhile, Warner sued Citibank seeking $1 billion in damages and an injunction barring the bank from providing financing to Paramount. In its suit filed in the state’s Supreme Court, Warner alleged that it asked Citibank on March 4 to agree not to participate in an unsolicited or hostile tender offer for Time or Warner, in exchange for Warner promising to “continue its banking relationship with Citibank.”

According to the lawsuit, Citibank agreed and said in writing on March 8 that it would refrain from such action for 90 days.

Although the 90-day agreement appears to have expired on June 6--the very day Paramount announced its bid--Warner attacked the integrity of the bank’s dealings by alleging that Citibank’s “discussions and negotiations took place within the 90-day period.”

Efforts to reach a Citibank spokesman late Wednesday were unsuccessful.

Time shares closed just $5 shy of Paramount’s bidding price. One trader suggested the market hesitated to go higher because investors fear Time really will proceed with a tender offer for all or part of Warner, with a resulting tumble in he value of Time shares.

Speculators also may be hesitating to drive the price higher because any new deal for Time likely would require three or four months to secure regulatory approvals from federal and local governments, as the Time-Warner deal recently demonstrated.

There were hints Wednesday that Warner and Time will take their battle to Washington to protest the sale of yet another American corporation through the assumption of debt that might--despite Paramount’s protests to the contrary--require sale of some assets.

But some of the very politicians who supported the Time-Warner deal may have trouble opposing Paramount if it argues that it can keep Time’s assets intact. In an interview late last week, for example, Sen. Pete Wilson (R-Calif.) said he supported Time-Warner because the deal would not likely result in massive layoffs in Southern California and the combined company would continue to be managed by executives from the entertainment and media fields.

Wilson, when asked how he would view a bid from an entertainment conglomerate other than Warner, replied: “That’s a different situation.” The senator was not immediately available for comment Wednesday.

Time Stock Soars:Daily closing price per share, in dollars Wednesday close: $170, up $44