Clash of The Titans

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The phone on the desk of Richard Munro, chairman of Time Inc., rang at 6 p.m. last Tuesday. On the line was Martin Davis, chairman of Paramount Communications, a onetime industrial conglomerate that had changed its name from Gulf & Western just the day before. Davis had a stunning message for his fellow chief executive. Although Munro had assurances from Davis that he would not mount a takeover bid for Time, Davis was reneging: he declared that Paramount was launching an offer to acquire Time for $175 a share, or $10.7 billion. Time stock had closed at 126 that day.

Paramount's tender set the stage for a clash of media titans that could lead to months of multibillion-dollar broadsides, legal pyrotechnics and dangerously unpredictable consequences. The Paramount bid came just 2 1/2 weeks before shareholders of Time and Warner Communications were to vote on merging their firms into the world's largest media company, with total revenues of $10 billion. But the sudden strike by Paramount, whose operations include one of Hollywood's top movie-and-TV studios and the giant publishing house Simon & Schuster, disrupted those plans and threatened to provoke a free-for-all in which the ownership of all three communications giants could be up for grabs.

Rarely had three firms of comparable size and stature been locked in such a bizarre triangle. "You can't help worrying now about what kind of company this will produce. No one knows where this sort of runaway sled ends up," said Richard Christian, associate dean at Northwestern University's Kellogg Graduate School of Management. Declared a Los Angeles-based securities analyst: "This is going to be the greatest battle that Hollywood has ever seen."

The offer touched off a frenzy among Wall Street arbitragers, who snapped up Time stock in the belief that Paramount would prevail or attract other bidders into the fray. Time shares skyrocketed from 126 to 170 on Wednesday and finished the week at 170 1/4. Since Wall Street investors considered all three companies now to be in play, Warner stock jumped to 56 1/8, up 4 points for the week, and Paramount rose to 59 1/8, up 5 5/8.

The bid, which was 35% more than Time's stock price before the offer, exploited the dissatisfactions of many on Wall Street who had long cherished the notion that Time was worth more in pieces than whole. Since the merger agreement was reached on March 3, some investors had complained that the terms provided Time shareholders with no immediate financial reward. Reason: the agreement called for a debt-free swap of 0.465 shares of Time stock for each Warner share.

The arrangement would give Warner stockholders a premium, reflecting the fact that in effect Time was acquiring a slightly larger company with many more outstanding shares, but would leave Time's stockholders with only the prospect that their stock would appreciate over the long run. Moreover, the process of getting Government approval and working out legal details required a 3 1/2-month gap between the announcement and the stockholders' vote on the deal, which left enough time for a hostile bidder to marshal his forces.