Bid for Warner Is Muddied by Chris-Craft

In an 11th-hour move, Warner Communications’ largest shareholder launched three legal actions in New York and Delaware courts that could delay Time Inc.’s cash tender offer for Warner due to expire Monday night.

Chris-Craft Industries, a large and dissident shareholder since 1984, owns 17% of Warner shares worth $1.7 billion under the terms of Time’s $70-per-share offer.

Chris-Craft’s legal action is regarded as a sideshow to Time and Warner’s battle in Delaware Chancery Court, where their deal has been challenged by Paramount Communications Inc. Time recently rebuffed a takeover bid from Paramount worth $200 per share.

The Delaware decision is expected today, and Chris-Craft has asked for the chance to intervene if the court orders a stay, or temporary halt, to Time’s tender offer. Essentially, Chris-Craft said it will urge the court to require Time to extend its offer instead of allowing it to accept shares without paying promptly. That petition could affect all Warner shareholders.

Chris-Craft is in a unique quandary, however, because most of its Warner shares are preferred stock, which must be converted to common if Chris-Craft wants to participate in the tender offer.

Time intends to complete the tender in two stages, promising cash for only half of Warner’s shares. Since the cash offer is expected to be oversubscribed, Chris-Craft is protesting that it is being coerced into converting its shares and giving up its preferred shareholder rights, in effect getting stuck with common. Although Time has promised to acquire the remaining Warner shares, it has not disclosed its formula of cash, stock or debt valued at $70 a share.

To address that problem, Chris-Craft on Thursday asked a New York trial court to force Time to accept its preferred shares without going through the conversion. After hearing arguments, the judge put off the matter until Monday.

Finally, Chris-Craft asked the Delaware court to clarify its rights under a settlement reached with Warner and Time in May regarding the fate of a broadcasting unit co-owned with Warner. The settlement would have given Chris-Craft 62.1% after a spinoff of Warner’s stake to Time-Warner shareholders.

At the time of the settlement, Time and Warner were planning a stock swap that has been abandoned in favor of Time’s $14-billion acquisition of Warner. Now Time and Warner no longer think that Chris-Craft is entitled to the full 62.1%, court filings indicate.