2 Japan Firms Offer Deal to Time Warner

Time Warner Inc. appeared closer Wednesday to joining other American media giants in locking up overseas financial backing, as two Japanese companies said they were negotiating to buy stakes in the debt-burdened company’s entertainment businesses.

Under the proposed deal, C. Itoh, a major trading company, and Toshiba, the electronics firm, would each put up $500 million for equity stakes in a newly created Time Warner subsidiary that would have interests in the company’s film, cable and pay-TV operations.

Time Warner’s publishing and music businesses would not be involved in the proposed deal, according to a senior Toshiba executive who asked not to be named.

New York-based Time Warner declined comment.

Toshiba and others had been negotiating to buy stakes in Time Warner businesses last spring, but those investments never materialized because of investor anxiety over Time Warner’s high level of debt. Since then, however, Time Warner raised $2.7 billion in a stock offering and has reduced its outstanding debt by 23%, to $8.7 billion.

Steven J. Ross, chairman and co-chief executive of Time Warner, reportedly will travel to Japan on Saturday to meet top executives of the two Japanese companies.

Reports Wednesday in the New York Times and a Japanese newspaper about the possible Japanese investment caused an influx of buy orders for Time Warner stock that resulted in a delay in trading. The shares jumped $2.125 Wednesday to close at $85 on volume of nearly 1.2 million shares.

If the deal is signed, Toshiba will become the third Japanese electronics company to make a major investment in America’s entertainment business--one of the few industries in which the United States retains an overwhelming competitive advantage worldwide.

Last year, Matsushita Electric Industrial Co. bought MCA Inc. for about $6.6 billion; Sony bought Columbia Pictures the year before for $3.4 billion.

The consumer electronics companies believe that access to movie makers’ video libraries will become increasingly important as the Japanese develop new video products such as high-definition television.

At the same time, entertainment software producers such as Time Warner--whose movie and cable units include Warner Bros. studio, Home Box Office and Time Warner Cable--hope to gain a competitive edge by knowing in advance about upcoming innovations in hardware.

The decision to leave Time Warner’s music business out of the deal was made to avoid a potential conflict of interest between Time Warner’s music division and Toshiba-EMI, Toshiba’s joint venture with the British music company Thorn EMI, Toshiba executives said.

On the other hand, Toshiba and C. Itoh said they are deeply interested in drawing upon Time Warner’s vast experience in developing and running cable television operations.

C. Itoh already has a major interest in Japan Communications Satellite Co., which owns two satellites that broadcast programming for cable television networks. The company also owns several dozen cable television networks.

Time Warner has been seeking a cash infusion since January, 1990, when Time Inc. went deep into hock to acquire Warner Communications Inc. The company approached C. Itoh and Toshiba more than a year ago asking for $2 billion to $3 billion in financing.

In the course of negotiations, however, the poor state of the financial markets in Japan--including the slumping stock market--made raising money difficult.

Toshiba, in particularly, has been facing sluggish sales at a time when it feels compelled to continue investing heavily in the cash-hungry semiconductor business. Leslie Helm reported from Tokyo, and Victor F. Zonana reported from New York.