Paramount Alleges That Time’s Bid for Warner Is Illegal

As the battle for Time Inc. shifts to a Delaware court, Paramount Communications said Tuesday that it will file new documents today alleging that Time’s $14-billion bid for Warner Communications is, in essence, an illegal effort to entrench management.

Time last week spurned a hostile $10.7-billion cash offer from Paramount in order to press ahead with its planned merger with Warner. Time’s board altered its original plan to exchange shares with Warner, however, to avoid putting the decision to a shareholder vote. The upshot is that Time will have to borrow heavily to acquire Warner, leaving its shareholders with no immediate cash payment and a declining stock price.

The price of Time’s shares slid another $4.375 Tuesday to close at $152.50. In the three days of trading since Time disclosed its strategy, the price has dropped $19.

Warner declined 12.5 cents to $59.50, with nearly 2.7 million shares changing hands, making it the fourth most active issue on the New York Stock Exchange. Paramount closed at $59.375, down $1.125, with slightly more than 1 million shares traded.

Time’s actions enraged some Wall Street traders, who are further frustrated by the prospect of another major takeover battle being decided on legal grounds instead of economics. More than one professional investor has speculated that Paramount may soon increase its $175-per-share bid to step up the pressure on Time’s directors and institutional investors, and perhaps the court itself as a July 11 hearing date approaches.

In an amended complaint due to be filed today, Paramount’s lawyers are asking the court to enjoin Time from taking steps to complete its offer for Warner, now set to expire July 17. Paramount is also asking the court to nullify any vote for directors at a Time shareholders meeting set for June 30, where three Time executives are among those on the uncontested slate.

Paramount is also asking the court to undo an exchange of shares between Time and Warner that occurred last Friday, which Paramount considers a “lockup” maneuver to deter other bidders.

On hearing some of Paramount’s contentions, Time Vice President Louis J. Slovinsky replied: “These appear to be the same specious allegations that Paramount has been retailing in the press for days. They can’t support their claims.”

Lawyers for Time and Warner are expected to file replies by Friday.

Paramount initially sued Time and Warner on June 7--the day it launched its hostile bid for Time--in an effort to overturn some of Time’s anti-takeover defenses. Paramount lost its first round, however, when Chancellor William T. Allen rejected the hostile bidder’s request to stop Time and Warner from exchanging blocks of stock that left Time with 8.69% of Warner’s voting shares and left Warner with 11.04% of Time.

The amended Paramount complaint still names as defendants three Time directors who resigned in the days immediately after Paramount’s offer. The three--Henry C. Goodrich, Clifford J. Grum and Clifton R. Wharton--were not present when the board voted last week to acquire Warner.