Who owns Time? - Time Inc. takeover battle

National Review, Sept 1, 1989

THE MONTHS-LONG BATTLE over who would own and manage Time Inc. has finally been settled, to the detriment of Time's shareholders, by the Delaware state court. The legal issue was a matter of splitting hairs over whether or not Time's managers had put the company up for sale when they agreed in March to merge with Warner Communications. In the initial scheme, since Time was the smaller company, its shareholders would have received only 40 per cent of the combined stock. This allowed Paramount to claim that Time was being bought by Warner, and to make its own offer to Time's shareholders.

But they were not allowed to choose; instead, the issue was moved from the marketplace, where it belonged, to the court, In the event, Time will take on an extra $14 billion in debt, diluting the profits left to pay dividends to its shareholders. The final deal with Warner is slightly more balanced than the initial one, yet still leaves the stock price depressed and has Warner people filling half the seats on the board.

The fundamental issue is shareholder rights. It is the shareholders, not the managers or board of directors, who really own Time. A merger with Warner was indeed "friendly" (one of the legal points at issue): that is, friendly to the existing management of Time, but distinctly unfriendly to the shareholders. Time claims the deal will benefit shareholders "in the long run," but if investors believed that, the stock price would rise. Instead, it fell like a stone as soon as it became likely that Paramount's bid would be stopped. Paramount had offered $200 a share, and analysts reckon Time's assets would really be worth $240 if properly managed. Yet the stock sold for only $130 before the merger activity-a sure sign of mismanagement. Magazines are no longer Time's best assets. Yet Time's valuable cable-TV operations, second largest in the country, are widely considered an underdeveloped asset.

In all of these decisions, the true owners of Time have had no voice at all. They have now ended up with stock worth something like $50 to $80 a share less than Paramount was probably willing to pay. Since shareholders could not get any better treatment from the court than they got from Time's management, the next step should be to work to get the Delaware law changed so that this kind of neglect of shareholder interests won't happen again.