Judge Erred in Assessing Time Bid, Suitor Says

In its appeal of last week’s court ruling on its takeover bid for Time Inc., Paramount Communications is arguing that a lower-court judge gave too much weight to the Time board’s “subjective” strategic plan and ignored Time’s improper efforts to duck its tender offer.

In a 48-page brief released Tuesday, Paramount also contends that Chancellor William T. Allen misinterpreted its $12.2-billion offer as a threat to Time’s interests when the offer represented a better deal for shareholders than Time’s plans to merge with Warner Communications.

In a separate development, Warner told a New York judge that it would settle a quarrel with its largest shareholder, Chris-Craft Industries, to avoid a court battle. Chris-Craft had complained that it was being coerced into converting all of its preferred shares--about 12% of Warner’s equity--into common stock to participate in Time’s tender offer.

The offer is expected to be oversubscribed because Time has promised to pay cash for only 51% of Warner’s shares. Warner said Tuesday that it is now willing to return any leftover shares to Chris-Craft in the form of preferred stock.

Some Shareholders Upset

Chancellor Allen ruled last Friday that Time’s directors were only exercising their proper prerogatives when they offered $14 billion for Warner and refused to entertain Paramount’s hostile bid. Paramount promptly appealed the ruling to the Delaware Supreme Court, which will hear arguments Monday morning.

The decision has also been appealed by a group of large Time shareholders that includes Texas billionaire Robert M. Bass, Hollywood entrepreneur A. Jerrold Perenchio and Cablevision Systems, the Long Island-based cable television company headed by Charles Dolan.

In their pleadings, Paramount and the Bass-led group relied heavily on a precedent set in Delaware law when Texas oilman T. Boone Pickens Jr. sought to take over Unocal. The Bass lawyers said the Chancery Court erred by ignoring evidence that Time’s board failed to fulfill the procedural requirements established in the Unocal case.

Chancellor Allen, Paramount contended, supported Time’s resistance to the Paramount offer simply on the basis of the directors’ assertions that they had a superior long-term plan in their proposal to buy Warner. Because it is based on an interpretation of motive, the ruling “will leave directors free to reject any offers if they point to some long-term strategy, (and) free to unleash any defensive mechanism . . . in support of a long-term strategy,” Paramount wrote.

Debt Load Criticized

Time’s lawyers have argued that its merger with Warner would be superior to the Paramount deal because Time and Warner combined would have great strengths that would drive the combined company’s stock up sharply in the years ahead. But Paramount quoted an investment banker’s analysis to argue that Paramount’s offer represents a higher price than what the Time Warner combination would achieve in the years ahead.

“Time’s long-term strategy is economically inferior to Paramount’s offer,” the brief maintains.

Paramount also says the chancellor erred in finding that Time reacted reasonably when it made its tender offer for Warner in an effort to dodge Paramount’s bid. In fact, the bid was “utterly out of proportion” because it loaded Time with debt that would not permit the fast growth envisioned when Time forged a stock-swap merger plan with Warner in March.

Time’s action was also unreasonable because it allowed no shareholder say in the Warner merger and also precluded Time from considering other bids, Paramount contended.

Time’s brief to the court is due to be released today.

Separately, Warner reported net income of $83 million on revenue of $1.3 billion for the three months ended June 30. For the six months, Warner posted net income of $184 million, up from $138.8 million during the comparable period a year ago. (Warner’s year-ago figures have been restated to reflect the results of Lorimar Telepictures Corp., which Warner acquired in January.)

Warner said charges associated with funding its executive bonus plans were $89 million for the six months ended June 30.

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