Time, Warner Boards Quiet on Strategy

Directors of Time Inc. and Warner Communications Inc. apparently met separately Thursday to thrash out plans to salvage their merger, but by nightfall, neither company had tipped its hand about the next move.

Rumors of the meetings--on the ninth day after Paramount Communications made its surprise $10.7-billion cash bid for Time--provoked long debates on Wall Street about whether Time and Warner can find an expedient solution together, or whether the two companies will ultimately go their separate ways.

Meanwhile, Paramount Chairman Martin S. Davis stepped up the pressure on Time’s 12 directors with a letter reminding them that Paramount is prepared to sweeten its offer. Davis asked for a meeting and said Paramount would “be prepared to review any non-public information which you believe could justify a higher price.”

Neither Time nor Warner would confirm that its directors had been summoned, but several out-of-town members of each board were in Manhattan on Thursday.

‘Help Finance’

Although Time has not responded formally to the offer, the media giant has demonstrated its anger over the unsolicited Paramount bid, which has almost certainly derailed the non-cash stock swap with Warner that was to be put to a shareholder vote next week.

Wall Street sources reiterated their belief that Time has encouraged investment bankers to search for prospective buyers of Paramount itself. One investment banker said Time is believed to have offered to “help finance the bid” if a buyer for Paramount can be found.

Nearly 2.8 million Paramount shares changed hands Thursday on the New York Stock Exchange, although the closing price of $59.50 was unchanged from Wednesday’s close. Warner’s stock rose 62.5 cents to close at $55.625, while the price of Time shares fell $3.625 to $171.50, below the $175-per-share offer made by Paramount.

In a related development, Warner and Time announced that the City of New York has cleared the way for the transfer of Time’s and Warner’s six cable franchises in the boroughs of Manhattan, Brooklyn and Queens to the new company if the merger takes place. The cable systems serve nearly 9% of the 5.5 million subscribers in the combined Time and Warner cable systems. Some analysts are betting that Time and Warner will still try to merge but will change the terms of the deal and offer a handsome dividend to shareholders. One analyst said he believes that Time is prepared to take on massive debt to complete the merger if necessary, while Mark Manson, an analyst at Donaldson Lufkin & Jenrette, said he believes the merger is “financeable” if the original stock-swap ratio is changed in favor of Time shareholders and a cash dividend of as much as $125 is paid. The combination would result in a package comparable to Paramount’s offer to Time shareholders, Manson said.

But other traders interpreted the declining price of Time shares and the increase in Warner’s as a clear sign that more investors had come to expect a Time tender offer for part or all of Warner.

One stock speculator said Time advisers Wasserstein, Perella & Co. have a reputation for hard-line defenses, and might urge rejection of the Paramount bid or even a cash dividend to Time shareholders.