Time Warner Stock Decline Blamed on Offer

Time Warner Inc. stock fell sharply again Friday, sharpening doubts among some analysts and investors about whether the company’s plan to sell millions of new shares to current holders will be successfully completed.

The media and entertainment company’s stock closed Friday at $94.625 a share, off $4.875 on heavy trading of more than 2 million shares. The stock, which lost a whopping $11.25 a share Thursday after the announcement of the stock-purchase rights plan, finished the week 21% below its close a week earlier.

“We think the deal is in question,” said Michael Kupinski, media analyst for the investment firm A. G. Edwards & Sons in St. Louis. “Either less than 60% of the holders will exercise their rights, or the company will withdraw or modify the offer.” At least 60% of the rights must be exercised or the offer becomes null and void.

New York-based Time Warner proposes to give current shareholders rights to buy a total of 34.5 million new shares at an effective price somewhere between $63 and $105 each. The complicating factor in the offer is that shareholders cannot know the price until after they decide whether to exercise their rights.

If 100% of the rights are exercised, the effective price will be $105 a share, considerably above the current market price for Time Warner shares. But as participation in the offer declines, so does the effective price. If only 60% of the rights are exercised, the price of the new shares would be a relative bargain at $63 each.

A Time Warner spokeswoman staunchly defended the plan Friday: “We have every confidence in the offer and believe it’s the right thing for the company and the shareholders.” She said the company had no intention of modifying the terms of the offer even though shareholders face the possibility of paying more than the current market price for the new shares.

Depending on how many rights are exercised, the plan would raise $2.1 billion to $3.5 billion in new cash, which the company said it intends to use to pay down some of its $11 billion in debt. Part of that debt comes due in 1993.

Several analysts said Friday that the rights plan is attractive despite its complications and despite the hefty fees to be paid to investment bankers underwriting the offer.

“Shareholders are complaining,” said Lisbeth R. Barron, analyst with S. G. Warburg & Co., a New York investment firm. “But it’s an excellent deal for the company. And from the shareholders’ point of view, they’ll have a better company after the dust settles.”

Reducing Time Warner’s debt would strengthen the company’s balance sheet and perhaps improve its bargaining position in continuing talks to form “strategic alliances” with outside investors, reportedly including Toshiba Corp. of Japan. Time Warner--whose operations include magazines, records, cable TV and the Warner Bros. studio--incurred its debt in 1989 when Time Inc. bought Warner Communications and formed the current company.

Barron said she expects “at least 80%” of the rights will be exercised. She predicted that Time Warner shares, which she called “artificially priced at this level,” will rebound to the $120-$125 range during the next nine months. Dow Jones News Service reported Friday that Time Warner’s chief financial officer, Bert W. Wasserman, said Thursday that he expected not more than 90% of the rights to be exercised. Perhaps not coincidentally, a 90% participation rate would yield an effective price for the new shares of $94.50--almost exactly Friday’s closing price for existing Time Warner shares.

But this built-in uncertainty in the rights offer clearly dominated Wall Street’s attitudes toward the company Friday, and many investors apparently decided simply to sell their shares rather than figure out the value of the rights offer.

As Jay Nelson, media analyst with the Brown Bros. Harriman investment firm in New York, noted, “You probably ought to exercise the rights or sell them separately and hold the stock. But even then, it’s intuitive. It’s a game situation. Your outcome depends on how many people exercise, and you can’t know that.”