Corporate Finance

In a determined drive to pare its debt, Time Warner last week launched a much anticipated plan to raise $2.8 billion in the largest stock offering in ) U.S. history. The entertainment and information giant, the parent of TIME, granted stockholders securities called rights to buy 34.5 million new shares of Time Warner for $80 a share. The deal, which gave stockholders 0.6 of a right for every common share they owned, replaced a hotly controversial proposal that would have priced the stock at anywhere from $63 to $105 a share, depending on how many stockholders participated. Time Warner scrapped that plan after shareholders and the Securities and Exchange Commission complained that the sliding price scale made it impossible for buyers to know how much they were paying until the offer was completed.

Investors gave the new plan a warmer reception. The price of the new rights climbed from 5 1/2 each on Monday to 8 3/8 at the end of the week. "Investors seem to be breathing a huge sigh of relief," said Christopher Dixon, an analyst for PaineWebber. "This is a significant improvement over the blind rights offering," concurred Cliff Hinkle, executive director of the Florida State Board of Administration, a pension-fund manager that holds 188,000 Time Warner shares and had joined a stockholder suit against the previous plan. "Before, you couldn't tell how much you were going to pay."

Time Warner shareholders must decide by Aug. 5, when the rights expire, whether to participate in the stock offer. But the company is virtually assured of selling all 34.5 million shares because such Wall Street firms as Salomon Brothers, Goldman, Sachs and Merrill Lynch, which are underwriting the offer, have agreed to purchase any unsold stock. "This deal is done," says John Reidy, an analyst for Smith Barney. "It's over."

For Time Warner, the offer marks the latest move to pursue the vision of global expansion that executives saw when Time Inc. acquired Warner Communications in 1989. Since then, the company has sought joint ventures with other major firms, both for strategic reasons and to gain a cash infusion. But the $11 billion in debt that Time Warner assumed in the merger left the company in a weakened position to negotiate such deals. With qualms about the stock offer now laid to rest and the debt due to shrink 25%, the grand alliances may finally be within reach.