The Bidding For Time : Thinking Big : Acquiring Time would cap Martin Davis' six-year drive to make Paramount a global communications giant.

By PAUL RICHTER

June 8, 1989 12 AM PT

<i> Times Staff Writer </i>

NEW YORK —

It was less than two months ago that Gulf & Western Chairman and Chief Executive Martin S. Davis announced that he would sell off his company’s big finance unit and reshape the concern to become a pre-eminent player in the global media and entertainment industry.

Davis’s just-announced takeover bid for Time Inc. shows he wasn’t exaggerating his ambitions.

If the feisty executive succeeds in stealing the magazine and TV giant from Warner Communications Inc.--and that’s a big “if”--Davis will have turned the conglomerate he inherited in 1983 inside out and made it the world’s largest communications company.

The deal “represents the culmination of a six-year strategic transformation,” said Davis, whose company this month formally took its new name of Paramount Communications Inc.

Paramount took several more steps Wednesday in its quest for Time by formally issuing its $175-a-share tender offer to Time shareholders and going to court in Delaware to block a stock swap agreement between Time and Warner that would make the takeover vastly more expensive.

The agreement provides that in the event of an offer such as Paramount’s, the two companies would exchange blocks of each other’s stock, a move that effectively would give Warner a $400-million breakup fee. A Delaware judge adjourned until Friday morning a hearing on the agreement, which Paramount claims would deprive Time shareholders of a chance to entertain takeover offers.

Separately, Davis sent a letter to Time Inc. Chairman J. Richard Munro asking for a meeting with Munro and the Time board.

For Paramount, a merger would offer a long list of benefits.

Perhaps foremost, it would marry Paramount’s entertainment production capacity to Time’s potent distribution capacity. The movies and television programs from Paramount’s studios could be distributed over Time’s cable properties, which include Home Box Office, the No. 1 pay-TV service; and 82%-owned American Television & Communications, the No. 2 owner of cable systems.

Deal Offers Strength, Cash

Paramount would also gain the financial strength and prodigious cash flow of Time’s magazine properties, which include Time, Fortune and Sports Illustrated. Time’s magazine division, No. 1 in the country, gave Time Inc. the financial stability to expand its cable operations over the past decade.

The magazine properties complement Paramount’s Simon & Schuster, the nation’s largest book publisher, as well as Paramount’s other educational and trade book publishing units, analysts say.

“The deal would fill out the slate for Paramount in filmed entertainment and in publishing,” said Jeffrey Logsdon, analyst with the Crowell, Weedon & Co. brokerage in Los Angeles.

Paramount executives insist that they plan to hold on to all Time properties rather than sell off any to lower the debt they will incur. Davis also seemed to play down suggestions that after a takeover Paramount might try to boost profits by deep cost cuts at Time.

“Cost cutting is a term that people throw around loosely,” he said Wednesday at a meeting for securities analysts held in New York.

The deal would also seem to close a remarkable era of changes for the former Gulf & Western that began when Davis took over after the death of former Chief Executive Charles Bluhdorn. Declaring that the age of the conglomerate was past, Davis began selling off Gulf & Western units that included auto parts, cigars, zinc and sugar.

Before long, Gulf & Western’s businesses were concentrated in entertainment, publishing and in the Associates consumer finance business that even last year accounted for almost half of the company’s revenue.

But if a merger with Time Inc. would be a logical next step for Paramount, cinching it will not be easy.

At the meeting with securities analysts, Davis and other key executives were peppered with questions about the unexpected turns that the looming takeover battle may yet take.

What if Time Inc. scraps its all-stock deal with Warner and offers cash for its would-be merger partner? What if another company senses that Paramount is itself now “in play” and makes a bid for it?

“We’re not worried,” insisted Davis.

Paramount executives acknowledged that a takeover of Time would certainly interrupt the steady earnings growth that Paramount has enjoyed since Davis took control. The company would probably report a loss in the first year and cut its dividend sharply.

Paramount executives also stopped short of saying they would drop their offer if the Delaware courts rejected their suit to block the stock-swap agreement. If the court rules adversely, “we’ll consider our position at that time,” said Donald Oresman, Paramount’s general counsel.

Davis said Paramount had waited until Tuesday to unveil its tender offer because it lacked details about the Time-Warner deal that became publicly available when the companies released their proxy statements late last month.

“We knew the proxy statements would give insight,” he said, noting that the documents contained figures on the companies’ historical cash flow and details about their merger.

Davis insisted again that, contrary to Time Chairman Munro’s assertions, the unsolicited takeover did not violate an earlier agreement between the two executives that Paramount would not launch a hostile takeover attempt.

Davis said he had first approached Time executives about a possible merger as long ago as “three or four years” and had again broached the idea to them as recently as six months ago. Time executives had insisted they wanted to remain independent, “and we respected that,” Davis said.

But with the announcement of the deal with Warner, “they put themselves in play,” Davis said. Suggestions that Time officials were betrayed are “unfair and uncalled for,” he added.

Davis ventured that Time Inc. might find Paramount’s corporate culture “more compatible” than Warner’s. “I think we’re closer to Time’s philosophy than others,” Davis said. Some analysts have suggested that there might be a clash between the button-down ways of Time and the more freewheeling style of Warner.

Davis, who has repeled such corporate raiders as Carl C. Icahn and Carl M. Lindner, said he was not daunted by financing Paramount’s offer or by the impressive array of investment bankers and lawyers that Time and Warner have lined up to defend their deal. “I would hope they’re daunted by me,” he said.

THE RESHAPING OF GULF & WESTERN

Gulf & Western has been transformed into Paramount Communications Inc. by a series of sales that began when Martin S. Davis became chief executive on the death of Charles Bluhdorn in 1983. The following charts show the company as it was in 1982 and as it stands now.

Gulf & Western

1982 Revenue: $6.4 billion

Natural resources: 4%

Food products: 5%

Automotive: 8%

Financial services: 17%

Manufacturing: 18%

Leisure time: 22%

Consumer products: 26% Paramount Communications

1988 Revenue: $5.1 billion

Publishing information: 23%Entertainment: 37%

Financial services:* 40%