Seagram Buys 5.7% Stake in Time Warner : Media: Montreal-based firm says it is a friendly investor. It seeks to become Time Warner’s largest shareholder.

The Seagram Co., betting on the high-tech revolution expected to unfold in entertainment, has bought 5.7% of media giant Time Warner Inc. for $702 million and plans to acquire an even larger stake.

News of the investment, disclosed Wednesday in a Securities and Exchange Commission filing, sent Time Warner’s stock soaring as high as $39 in after-hours trading before it fell back to close at $38, up $1.375 for the day and a new 52-week high.

The move makes the Montreal-based distiller the second-largest Time Warner shareholder after Los Angeles-based Capital Group, which owns 11% of the stock.

Edgar M. Bronfman, chairman of Seagram, said he is a “friendly investor” and is “fully supportive of Time Warner management.” Bronfman hailed Time Warner’s entertainment business as “one of the great growth sectors of the 1990s and beyond.”

But one investment banker was skeptical that Seagram will remain passive or benign. “It always starts off this way, “ he said. “These guys are investors but they have a lot of money on the line.”

Seagram added to such speculation by announcing that it is seeking approval to acquire up to a 15% stake in Time Warner, which would make it the entertainment and media company’s largest shareholder. Seagram now holds 21.1 million shares.

Bronfman, scion of the Seagram fortune, is no stranger to entertainment. He acquired control of MGM in 1968, before selling out to investor Kirk Kerkorian.

For advice, Seagram has retained Allen & Co., the New York investment bank that counseled Sony Corp. on its acquisition of Columbia Pictures Entertainment in 1989, and advised Rupert Murdoch on his investment in Warner Communications Inc. in 1983 and 1984. Murdoch was fiercely rebuffed, and eventually sold his stock back to the company for a handsome premium.

In a statement designed to quell speculation that the move was hostile, Seagram likened its purchase of the Time Warner stake to its 12-year old investment in E.I. du Pont de Nemours & Co., of which it now owns 24.3%. Four Seagram directors also sit on the du Pont board. A Bronfman spokesman said the family has “no intention” to seek board seats at Time Warner.

In the short run, several analysts predicted that Seagram’s investment will boost the price of Time Warner stock above $40, which will enable the company to carry out a critical piece of financing to rid itself of its costly Series C Convertible Debenture, which pays 8 3/4% interest. The company now has $3.13 billion outstanding in those debentures.

Seagram said it bought the shares in a series of open-market purchases starting on Feb. 2. at prices ranging from about $31 to $35 per share. As of Wednesday’s closing price, Seagram’s stake was worth $820 million.

Shares of Seagram closed at 30 1/8, up 1/8, on NYSE composite volume of 420,000 shares.

Time Warner reacted favorably to the investment. “They have clearly expressed confidence in our vision and strategy for growth,” a spokesman said.

That strategy includes a complicated series of joint ventures and alliances with other companies to help pare its $15-billion debt and position itself for the trumpeted high-tech revolution expected to sweep the entertainment industry.

Boosted by favorable earnings reports and a bold alliance with regional phone company US West, which two weeks ago agreed to buy a 25% stake in its film and TV division, Time Warner’s stock has climbed 30% since the beginning of the year.