Paramount Lifts Offer for Time to $200 a Share

Playing to its Wall Street and courthouse audiences, Paramount Communications on Friday raised its hostile bid for Time Inc. to $200 per share, or 14% more than the $175-per-share offer spurned by Time directors a week ago.

The offer is conditioned on several factors, and Paramount has publicly admitted that it won’t be able to actually purchase Time’s shares by July 7, the day the new offer is set to expire.

But in one bold stroke, Paramount increased the pressure on Time’s 12-member board and the Delaware judge who will decide whether Time’s anti-takeover defenses are legal--including Time’s recent decision to acquire Warner Communications for $14 billion.

Paramount intends to use the new offer as a “referendum” to urge Time shareholders to send in their shares by July 7 so that Paramount lawyers can argue at a crucial Delaware hearing on July 11 that most Time shareholders favor the cash offer on the table.

That strategy--anticipated by professional Wall Street traders and confirmed by a member of the Paramount team--won’t hurt Time shareholders, because federal securities law allows shareholders to withdraw any shares they have tendered at any time before the offer expires. Even though Paramount is setting a “cutoff” date, it expects to extend the solicitation to allow time for the Delaware court ruling.

At the same time, Paramount’s sweetened offer is meant to erode Time Inc.’s argument that the earlier Paramount bid was “inadequate.”

The Time board deeply angered some investors one week ago by spurning Paramount’s cash offer yet substituting no plan that would deliver some cash to its own shareholders.

Instead, the Time board elected to pursue a 4-month-old plan to merge with Warner but changed the terms of the deal to avoid a shareholder vote. No longer would Time and Warner exchange shares in a tax-free deal: Now Time is committed to shouldering massive debt to acquire half of Warner’s shares for $70 each, with the remainder to be acquired for a combination of cash, stock or debt equities valued at $70.

The tender offer for Warner is set to expire July 17.

When asked about possible consequences for Warner of Paramount’s new offer, company spokesman Geoffrey W. Holmes said: “This is a matter for the Time board of directors to deal with. We have a firm agreement with Time to which we remain committed.”

Paramount’s increased bid received a quick but inconclusive response from Time, which advised its shareholders not to act until they hear more from the company. A spokesman for the media giant said its board will consider the new Paramount offer but he declined to say when the board will convene.

Stock Price Jumps

Although Paramount’s announcement came after the close of New York Stock Exchange trading, shares of Time rose $10.50 to $165.875 on speculative trading pegged to a Page 1 story in USA Today, which reported that Paramount would soon raise its bid to “around $200 a share.” Paramount closed at $58, down 50 cents, with more than 1.1 million shares changing hands, while Warner closed at $58.625, down 50 cents.

Even though the new bid would increase Paramount’s costs by $1.44 billion, a Paramount spokesman insisted that the company intends to hold on to all pieces of Time and Paramount, rather than sell off assets to ease the debt burden.

But some analysts were skeptical. Lisa Donneson, analyst with County NatWest USA, said the sweetened bid will put Paramount’s debt at about $12 billion in 1990, or about 8.5 times its annual cash flow from operations.

That debt burden is higher than the load carried by many entertainment or publishing companies; it is even higher than the debt load of many cable operators, which tend to be heavily leveraged, she noted. “To me that seems very high,” she said. “That could mean asset sales.”

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