SEAGRAM Company Ltd. has set its sights on the largest communications company in America, Time Warner Inc. The multibillion-dollar Canadian liquor company has already increased its stake in Time Warner.
Time Warner, which had more than $13 billion in revenue in 1993, is dominant in virtually every form of mass communications. Its holdings include Warner Brothers, the largest film studio in the United States; Time Inc., which includes Time magazine, Fortune, People, and Sports Illustrated; Home Box Office, the cable channel; and the Six Flags theme parks.
Montreal-based Seagram is one of the largest liquor companies in the world.
In May 1993, Seagram began boosting holdings of Time Warner shares. The company now controls 11.7 percent of Time Warner shares and says it will increase the number to 15 percent.
Last week Time Warner directors adopted a ``poison pill'' provision - a legal step declaring that outside ownership of Time Warner is limited to 15 percent of the total shares outstanding. If any outside buyer seeks to gain more than 15 percent, the poison pill kicks into effect and the prospective buyer must make an offer to buy the entire company or seek a negotiated settlement with Time Warner's board.
If Seagram is successful in gaining control of Time Warner, the impact on journalism, for one, could be significant, says Mitchell Stephens, head of New York University's school of journalism. ``We're seeing major news organizations'' falling into the hands of people ``not just with deep pockets, but with gold vaults for pockets,'' he says. ``The flow of information is increasingly in the hands of the very, very, very wealthy'' who may lack a ``genuine commitment to journalism.''
Seagram's approach toward Time Warner, market analysts say, is similar to its strategy regarding DuPont, the giant chemical firm. Edgar Bronfman Sr., father of current Seagram president Edgar Bronfman Jr., began buying stock in DuPont in the 1970s. The company eventually won 25 percent of DuPont and now has three seats on its board.
Seagram does not have any seats on Time Warner's board, however. ``They haven't asked us for a seat and we haven't offered them any,'' says Ed Adler, a Time Warner official in New York.
``Our adoption of a poison pill [measure] was not specifically aimed at Seagram,'' Mr. Adler insists. Still, market analysts say Time Warner's board acted to thwart a power grab by Seagram.
IME Warner has about 375 million shares outstanding. The stock is currently trading in the $40 range. But the company also has debt of around $16 billion. A full takeover could cost up to about $40 billion - an amount considered prohibitive for Seagram.
Most stock analysts say that rather than seeking a direct takeover, the Bronfman family is interested in becoming a major shareholder. But even a minority status could give Seagram enormous influence over Time Warner, experts say.
Time Warner's future is ``a bright one,'' thanks to growth opportunities stemming from the up-and-coming ``information superhighway,'' says Sharon Williams, an analyst with Prudential Securities Inc. Its cartoon characters, such as Bugs Bunny, are considered cash cows in their marketing possibilities. Warner Brothers has been the No. 1 film studio in Hollywood in market share in four of the last five years.
If Seagram challenges Time Warner's poison pill provision, experts say, there could be unexpected repercussions. For example, Time Warner has talked about a merger with US West Inc., a regional telephone company in Denver. If a hostile bidding war heats up, the company might be forced to seek a quick marriage with US West.