Paramount Loses Court Bid to Block Time-Warner Deal

A Delaware judge Friday rejected Paramount Communications’ request to temporarily block an anti-takeover clause of the merger agreement between Time Inc. and Warner Communications that Paramount feared could upset its rival $10.7-billion bid for Time.

Meanwhile, as the battle of the communication giants ended its third day, Time directors were believed to have set a meeting for Sunday, and there were signs of frantic lobbying by both sides in Washington.

On Wall Street, the stocks of the three giant media and entertainment companies were among the five most active in trading on the New York Stock Exchange. Time rose $2.25 to close at $170.25, with 2.36 million shares changing hands. Warner closed at $56.125, down 37.5 cents. Paramount rose to a 52-week high of $59.125, up 75 cents.

In Delaware, the legal skirmishing attracted so many bystanders that Chancellor William T. Allen had to borrow a federal courtroom in Wilmington to accommodate the overflow crowd at the 85-minute proceeding.

Late in the afternoon, Allen ruled that he found no reason to temporarily block a clause of the merger agreement that enables Time and Warner to swap huge blocks of newly issued shares.

The Paramount offer has triggered the parties’ rights under the exchange agreement, which if exercised would leave Time with 8.7% of Warner’s stock and Warner with 11.1% of Time’s shares. Paramount has contended that the exchange could add $1.2 billion to the cost of acquiring Time at its current offer of $175 a share.

Paramount challenged the clause as an illegal “lock-up” that would have kept outsiders from making higher takeover bids that could have benefited Time shareholders. But Allen said a temporary restraining order on the swap was unnecessary, since a swap could be nullified if the court finds during the trial that the swap is improper.

The restraining order thus “would not appear legally critical,” he said.

In separate statements, Time and Warner declared themselves “pleased” with the outcome.

Paramount said it considered the decision “an extremely satisfactory one,” contending that the court had “protected our position by assuring the status quo.” The court denied the motion “solely because it has the power after a full hearing to undo any Time-Warner stock swap,” a Paramount statement said.

This claim of victory prompted an angry rejoinder from Warner spokesman Geoffrey W. Holmes, who called it “clearly a public relations effort to cover the fact that the court had turned down their request.”

In his ruling, the Delaware chancellor also refused Paramount’s request to force Time or Warner to give Paramount five days’ notice if either Time or Warner decides to trigger the stock-swap agreement. Under that agreement, Time and Warner have an obligation to give each other five days’ notice, but the court’s ruling means “Warner and Time could agree to amend the agreement to exchange the shares immediately,” said Charles F. Richards Jr., a Wilmington attorney who represented Warner in the hearing.

“The court indicated that Paramount can’t possibly close its tender offer for a number of months. I think that is of some significance to the (stock) market,” Richards said. “I think it has significance for the course of this case, because it indicates that the court feels that he has several months to hear the issues.”

In his eight-page ruling, the chancellor alluded to the central issue of the case, which is whether Time and Warner properly forged their stock swap merger deal they announced in March. Paramount has contended the deal did not do enough to see if other, higher bids were available; Time and Warner have argued that in a “merger of equals” the corporate partners do not have to start an auction.

‘Swarming All Over’

Chancellor Allen wrote that the legal issues raised by the case “are ones that have not yet been addressed in Delaware or elsewhere.”

As they have struggled in court, the companies also mounted intensive efforts to get across their point of view on Capitol Hill.

“They’re swarming all over down there,” said a member of the Paramount team in New York.

Lobbyists for the Time and Warner side have emphasized how much debt the Paramount deal would load onto Time’s valuable package of entertainment and media assets; Paramount’s representatives have stressed how much better their $175-a-share offer would be for stockholders, say Capitol Hill sources.

Lobbyists on the Time and Warner side have gone further, several said, to urge legislators to contact Paramount and express their displeasure at the hostile takeover attempt, said one legislative source.

Media Ownership a Concern

“I would say this is very aggressive stuff,” the source said.

Paramount’s team includes Washington attorney Joseph A. Califano.

Among the targets have been members of telecommunications and finance subcommittee of the House Energy and Commerce Committee, and members of the communications subcommittee of the Senate Commerce Committee.

The Senate panel, chaired by Sen. Daniel Inouye (D-Hawaii), begins hearings Wednesday on the possible dangers of concentration of ownership in the media business.

Paramount, for its part, announced that it has entered into a voting trust agreement with Donald Rumsfeld, former Secretary of Defense and White House Chief of Staff under President Ford, which--if approved by the Federal Communications Commission--would enable Paramount to actually acquire the Time shares pending transfer of numerous licenses.

Paramount also announced that it has retained lawyers all over the country to handle the requests to transfer licenses to cable television franchises now held by Time and its subsidiaries.

Paul Richter reported from New York and Kathryn Harris from Los Angeles.