Forstmann Little & Co. has signed an initial agreement to invest $350 million for a one-third interest in Whittle Communications, the media company that was founded by Christopher Whittle.
The investment would reduce the stakes in Whittle now held by Time Warner Inc., Associated Newspapers of London, Whittle and 60 Whittle executives.
Forstmann Little, an investment firm that has historically specialized in leveraged buyouts while avoiding the "junk bonds" that characterized many of those deals in the 1980s, is expected to put up the $350 million in subordinated financing, convertible at a future date into a one-third equity stake.
One executive with knowledge of the talks said that the conversion would be in three to five years.
Theodore Forstmann, general partner in the firm, would not confirm that timetable.
When that conversion occurs, it would value Whittle Communications, based in Knoxville, Tenn., at $1.05 billion, a significant increase over the value that the former Time Inc. had put on Whittle in 1988, when it bought 50 percent of the company for $185 million.
Until the conversion takes place, valuing the company is tricky. Reginald K. Brack, chairman of Time Warner Publishing, said that his company's initial investment had more than doubled, and analysts generally agreed that it appeared to be a very good deal for Time Warner.
The investment would give Whittle Communications money at a relatively low cost; the interest is 6 percent. In a telephone interview yesterday, Mr. Whittle said that $220 million of the money would be used for existing projects and new businesses at Whittle. He said the balance would go to existing partners. Time Warner would receive $65 million.
The current ownership of the company would be diluted, with Time Warner's stake dropping to 33.3 percent from 50 percent; Associated Newspapers' stake falling to 22 percent from 33 percent; Whittle's to 7.3 percent from 11 percent, and the 60 executives' stake falling to 4 percent from 6 percent.
Since Time Warner has been extremely optimistic about Whittle's growth, some analysts attributed its willingness to take a reduced stake to its heavy debt load.
Mr. Brack, however, rejected that idea, saying that a new investor would benefit both Whittle and Time Warner. "We speed up growth, and we don't have to invest anything more in the interim," he said.
Dennis Leibowitz, who follows the company for Donaldson, Lufkin & Jenrette, said it appeared to be a very good deal for Time Warner. The company has already recouped $65 million of its $185 million investment and would still own a third of a company with a current value of about $800 million and a potential value of more than $1 billion.
Since 1988 Whittle has cut back its special interest magazines and added an advertiser-supported school television network and a television channel for doctors' offices and other medical centers.
Whittle said that revenues for the year ended June 30, were $207 million, and they are expected to reach $300 million this year.
For Forstmann Little, the investment represents somewhat of a departure because it has generally taken control of companies when it buys into them. But the firm would get a relatively manageable risk and the potential for a high reward, Mr. Forstmann said yesterday.