Rights Offer Feels Wrong to Staff at Time Warner

Investors aren’t the only ones grumbling these days about Time Warner Inc., whose common shares lost more than 20% of their value earlier this month after the company unveiled its controversial rights offering.

Employees of the media and entertainment giant are also singing the blues, both because of the collapsing value of their stock holdings and a series of unrelated cost-cutting moves at units of the debt-ridden company, including delayed raises for some writers, editors and executives.

The feeling by employees that they got a raw deal wasn’t helped by the disclosure that the company’s top executives, including Chairman Steven J. Ross, who reaped millions from the Time-Warner merger, will be spared the negative effects of the rights offering. Fine print in documents filed with the Securities and Exchange Commission shows that Ross and others will be protected by a favorable adjustment in the terms of stock options they hold.

Some cost-saving moves, however, affect only highly paid employees. At Time Warner’s magazine unit, for example, employees earning $100,000 and more will have to wait an additional three months this year for their annual salary reviews, which formerly took place on the anniversary of their employment.

Annual salary reviews will be delayed by six months for magazine employees making more than $200,000, said Time Inc. Magazine Co. spokesman Peter Costiglio. He could not say how many of the magazine unit’s 5,500 employees were affected by the freeze.

But other cuts affect the rank and file. At Home Box Office, cost cutters this week trimmed $10 a month from the former $50 monthly allowance employees received for their cable TV bills. HBO also eliminated a 50% subsidy for gym memberships and non-business educational expenses, such as flying lessons.

HBO spokesman Lou Slovinsky termed the changes “routine nipping and tucking,” adding that company benefits, once “off the scale” in terms of generosity, are still “very much at the top.”

But Time Warner sources said the cost-cutting measures are small change compared to the impact on employees of the rights offering, under which shareholders would be forced to put up at least $6,300 for every 100 shares of common stock they already own or face dilution of their stakes.

“To say that people are fuming is putting it mildly,” said one upper-level magazine employee, who said he will have to come up with tens of thousands of dollars in order to participate in the plan. “People close to retirement are the most angry.”

Jeanette Lerman, Time Warner vice president for corporate communications, said Time Warner understands the concerns of its employees and is trying to devise a plan under which employees can participate in the rights offering without putting up their own cash.

This might be accomplished by having the trustees of Time Warner’s employee stock ownership and 401(k) plans provide the cash on behalf of the workers, sources said. Through various plans, Time Warner employees hold about 4.5% of the company’s 57.8 million outstanding common shares.

The rights offering, which if fully subscribed would raise $3.4 billion toward the reduction of Time Warner’s $11.3 billion in debt, has rekindled suspicions among some employees and shareholders that Ross, who is also co-chief executive, is putting his personal financial interests ahead of theirs.

Ross’ total compensation last year was an eye-popping $78.1 million, according to Forbes magazine, although Ross partisans argue that a more accurate figure is his salary plus bonus of $3.2 million. The rest of the money came from stock gains reflecting shares accumulated over many years.

The plan to favorably adjust terms of the stock options held by Ross and other top executives has drawn criticism from some Wall Street securities analysts. “There’s nothing illegal about this, but it is a very selfish act,” contended Praveen Sharma, director of research of Asiel & Co., a New York broker-dealer.

Time Warner’s managers “have a pattern of not caring for shareholders as they line their own pockets,’ Sharma added.

Lerman, however, said the adjustments of the terms of the 15.4 million options “has nothing to do with protecting management” and is a result of “standard boilerplate language” adopted long before the rights offering was contemplated.