All Hitched Up and Ready to Go

By John Greenwald

The courtship lasted more than two years and survived a spectacular last- minute challenge from a jealous suitor. But last week the long-awaited corporate marriage finally took place. The result: Time Warner Inc., the world's largest information and entertainment company. The new giant, with 35,000 employees and $10 billion in revenues this year, will be a global contender in the fields of magazines, books, music, movies, TV programs and cable TV.

Time Warner came into existence last Monday after three Delaware Supreme Court judges delivered the final verdict in a seven-week battle that had riveted the attention of corporate America. Justice Henry Horsey matter-of- factly declared that the court had found "no error" in a July 14 lower- court ruling in which Chancellor William Allen denied a motion by Paramount Communications to block the merger of Time Inc. and Warner Communications. Said Horsey: "We therefore affirm the decision."

The terse statement allowed Time to proceed with its friendly acquisition of Warner. Within three hours of the decision, Time carried out its tender offer to pay $70 a share for 100 million of the more than 180 million Warner shares outstanding. Along with 17 million Warner shares that Time acquired in a stock swap in June, the tender gave Time a 58% controlling interest in its merger partner. As a result of the deal, Time changed its name to Time Warner; the company will buy the remaining Warner shares for a combination of cash and securities under terms that the parties must determine within three months. The purchase price will include a total of $677 million in payments to 500 Warner employees to honor their pre-existing stock, options and bonus plans.

For its part, Paramount dropped its $200-a-share hostile bid for Time after the supreme court ruling. The decision upheld Allen's finding that Time's management acted properly when it responded to Paramount's raid by converting the Time-Warner deal from a stock swap, which required shareholder approval, to a leveraged purchase, which needed no such vote. Paramount Chairman Martin Davis said he would "continue aggressively to build our core business in publishing and entertainment." Last week Paramount agreed to sell its financial-services subsidiary, Associates First Capital, to Ford Motor for $3.35 billion, which would give the communications company more cash for stalking other takeover candidates.

In the aftermath of the bruising battle, Time Warner will have to contend with up to $14 billion in new debt that was incurred in the takeover. But President N.J. Nicholas denied speculation that the combined company would be forced into a major selloff of assets to bring down the debt level. "We are under no pressure to cut, or sell, or do anything," Nicholas said. "We are going to grow our way out of this."

Yet the jury will be out for years on whether the Time Warner combination adds up to more than the sum of its two parts. After its courthouse victory, Time Warner must show that its monumental merger can be a winner in the toughest venue of all: the marketplace.

CHART: NOT AVAILABLE

CREDIT: TIME Chart

CAPTION: THE COMBINED PACKAGE

With reporting by Frederick Ungeheuer/New York