After months of acting nonchalant about the growing stake being acquired by Seagram Co., the board of Time Warner Inc. adopted defensive measures yesterday intended to prevent Seagram from buying more than 15 percent of Time Warner's stock.
Seagram, a Montreal-based spirits company, has been building a stake since May in Time Warner, a New York-based media and entertainment company.
On Wednesday, Seagram said it had increased its holdings to 11.7 percent from 10.4 percent. Seagram has said that it intends to buy as much as 15 percent of the company as an investment.
Time Warner, clearly fearful that Seagram would prove more than a passive buyer, said yesterday that its board had approved a rights plan that would flood the market with new shares if any buyer tried to acquire more than 15 percent of the company. Such a plan would dilute existing ownership.
The strategy, known as a poison pill, is a defensive tactic aimed at stopping a buyer from gaining control without the board's consent.
In this case, Time Warner is worried about the possibility of a "creeping tender offer," Wall Street parlance for gaining control of a company by acquiring its stock in the open market without paying a premium.
There is no absolute number for what constitutes control of a company, but, to cite one example, Laurence Tisch was named chief executive of CBS after Loews Corp. bought nearly 25 percent of the broadcaster's stock.
"We don't want to be Tisched," a top-level Time Warner executive said yesterday.
Time Warner sought to portray the plan as a way to ensure that shareholders would get a premium in any takeover, since its "chewable pill" plan would not apply if a bidder made an all-cash offer for all the company's shares.
But buying all of Time Warner would cost $15 billion at current stock prices, without a premium. That is far more than the roughly $10 billion now being offered for Paramount Communications Inc., which, unlike Time Warner, has no debt.
Time Warner carries about $9 billion in debt at the corporate level.
But the Paramount bidders are having trouble coming up with that much money. So, some traders and academic experts said the plan might be aimed more at discouraging anyone from acquiring a stake large enough to pose a threat to the existing Time Warner management, headed by the chairman, Gerald Levin.