Japanese Will Pay $1 Billion for Stake in Time Warner : Entertainment: Toshiba and C. Itoh will get 12.5% of studio and cable TV. Music and magazines are excluded.

By VICTOR F. ZONANA and LESLIE HELM

Oct. 30, 1991 12 AM PT

TIMES STAFF WRITERS

NEW YORK —

In the latest Japanese entry into the U.S. entertainment business, electronics maker Toshiba Corp. and trading giant C. Itoh & Co. agreed Tuesday to pay $1 billion for a 12.5% stake in Time Warner Inc.’s historic Warner Bros. studio and its cable television operations, including HBO.

The deal--which lightens Time Warner’s enormous debt load and improves its access to overseas markets--is a big step toward fulfilling highly paid Chairman Steven J. Ross’s vision of a global, vertically integrated, entertainment industry powerhouse, analysts said.

“If you have partners who bring to the table different expertise, and those partners come from different countries, that’s the best of all possible worlds,” Ross said in a telephone interview.

Warner Bros. becomes the fifth major studio to gain at least a measure of foreign ownership in the last six years--the third in which a Japanese maker of entertainment-oriented electronics equipment has gained a stake.

But Time Warner’s deal with the Japanese firms differs markedly from those made by Columbia Pictures and MCA, which sold themselves lock, stock and barrel within the last two years to electronics manufacturers Sony and Matsushita, respectively.

“They are investing $1 billion in this partnership, yet we have total control operationally and creatively,” emphasized Ross, who last year earned $78.1 million for heading Time Warner. The firm will hold 87.5% of the partnership--which excludes Time Warner’s book publishing, music and magazine businesses.

“This seems to be a smarter way of doing things,” agreed one New York investment banker who specializes in the communications industry and asked to remain anonymous. “Steve Ross managed to get top dollar for a minority stake.”

Investors in Time Warner--who have had little to cheer about since Time Inc. spurned a $200-a-share offer for the company from Paramount Communications in 1989, buying Warner Communications instead--also applauded the terms of the Japanese deal.

Time Warner’s common stock jumped $3.25 to close at $89.50 a share in New York Stock Exchange trading.

The sale of a stake in Time Warner’s magazines--which include Time, Fortune, People and Sports Illustrated--might have triggered concerns about overseas influence over their editorial policies.

Key Martin, chairman of the Newspaper Guild bargaining unit that has been loudly protesting the magazine unit’s recent elimination of 600 jobs, said he had no objection to the Japanese transaction. “The real threat to journalism here are the debt-related staff cuts, not any foreign ownership of the entertainment divisions,” he said.

Ross denied widespread entertainment industry and Wall Street speculation that the deal with Toshiba and C. Itoh was being driven primarily by Time Warner’s need to lighten its $8.8-billion debt load. Time Warner also is weighted down by about $5 billion in preferred stock.

The deals, Ross insisted, are designed primarily to help Time Warner “gain a foothold” overseas. As for the money? “It’s like chicken soup,” the Brooklyn, N.Y., native said. “It doesn’t hurt.”

Nicholas J. Nicholas, president of Time Warner, said: “We wanted the right partners. If money were a principal objective, we would have done other deals earlier.”

The new entity in which the Japanese companies will invest--to be known as Time Warner Entertainment--will continue to seek other overseas strategic partners, especially in Europe, Ross said.

Toshiba and C. Itoh each will pay $500 million for a combined 12.5% share in the new partnership, which will assume $7 billion of Time Warner debt.

For the Japanese firms, the primary attraction of the deal was Time Warner’s busy slate of movie, cable and television activity.

“The main reason is the abundant software produced by Time Warner,” said Minoru Murofushi, chief executive officer of C. Itoh. C. Itoh is the world’s largest trading group, with $151 billion in annual sales.

C. Itoh also hopes to get tips on how to improve its own cable television business, Murofushi said. The firm has a major interest in Japan Communications Satellite Co., which owns two satellites that broadcast programming for cable television networks.

And with operations in 87 countries, C. Itoh should also be helpful to Time Warner in enforcing its copyrights in developing nations, where intellectual property is often pirated.

Joichi Aoi, chief executive officer of Toshiba, said the electronics company’s investment would enable it to tap into Time Warner’s insights into future developments in the entertainment business.

“Their foresight is impressive--and foresight is very important in grasping the market needs of the future,” Aoi said.

Toshiba’s primary interest, he said, remains in building electronic products--”hardware,” in current parlance--for the entertainment business.

“We are confident Time Warner Entertainment will lead to significant new business opportunities in the rapidly expanding market of digital, interactive information technology,” Aoi explained. “When we consider the future development of the business, software will become as important as the hardware. It will be a dynamic relationship, with developments in hardware driving a new revolution in software.”

The Japanese executives denied earlier reports that Time Warner initially came to them with a request for a bigger investment.

The executives also said they never had any interest in acquiring the company. “Even if we wanted to, we don’t have $25 billion to pay,” Aoi said.

Zonana reported from New York and Helm from Tokyo.