Telephone providers have circumvented the same obstacle Paramount identified
City council meetings aren’t known for producing the stuff of Hollywood drama. But alongside earnest mayoral commendations, procedural votes about zoning and departmental budget worries that occupied many a Tuesday-night council meeting, there was something unusual on the agenda for dozens of U.S. city leaders in the spring of 1989.
With little warning, cities from Pittsburgh to Houston found themselves embroiled in a corporate takeover battle that had riveted the entertainment industry on both coasts. The venerable, upper-crust publishing company Time Inc. was planning to pay $14 billion to acquire Warner Communications Inc., a movie and television powerhouse created by a scrappy entrepreneur, Steven Ross, who had started out developing funeral parlors.
The combination of those two companies wasn’t the object of contention; both were willing mates readying for a “friendly” merger. Instead, the drama came from another bicoastal media conglomerate, Paramount Communications Inc., whose chairman Martin Davis wanted badly to derail the congenial deal and snap up Time Inc. for himself.
By the late 1980s, hostile takeovers, management-led “leveraged buyouts” and poison-pill defensive maneuvers were the common features of a corporate world immersed in a whirlwind of restructuring that unraveled some of the most enduring corporations in American business. The communications and media sectors weren’t spared. Walt Disney Co. and Storer Communications were two companies challenged by corporate raiders who had amassed stock and mounted fierce challenges for control.
The Time/Warner transaction, by contrast, was a willing corporate marriage. But still. When news of their plan broke, Time Inc. and Warner represented seemingly untouchable companies whose pairing seemed stunning. The idea of an expansive, global media power with assets stretching across the entire spectrum of media – books, magazines, movies, music, television and cable – entranced analysts and journalists who began to talk about a new era in the communications economy and the utter predominance of a unified Time/Warner conglomerate.
Paramount’s Davis would have none of it. Aiming to derail a merger he believed would imperil his company, Davis offered a premium of $175 per share for Time Inc. He later elevated the bid to $200, an astonishing value for a company whose stock was expected to settle at around $145 after the Warner deal was completed. Before the Delaware Court of Chancery that ultimately would determine the outcome of the battle, Paramount argued a fundamental tenet of the takeover era: that short-term shareholder value should trump the supposed long-term contributions any merger might deliver.
Forgotten in most of the history tied to the Time/Paramount imbroglio was another clever legal maneuver Paramount’s lawyers dug up. They knew part of the requirement for getting control of Warner Communications was convincing dozens of cities to transfer control of local cable TV franchises. It was this little-noticed attribute that sent Paramount lawyers scurrying around the country to file documents with cities seeking to block the transfers to Time Inc. in a creative bit of corporate sabotage. Paramount recognized that while the rest of the world was fixated on Wall Street’s reaction, there was another lever to push at the local level. The patchwork of local authorizations and contracts that allowed cable companies to string wires and gain easement access suddenly was thrust into the open as an influence in one of corporate America’s most riveting takeover battles.
In the end, Judge William Allen’s July 1989 ruling to deny Paramount an injunction blocking Time Inc.’s tender offer ended Paramount’s bid to gain control of Henry Luce’s publishing empire, and ultimately, the combined Time Warner Inc. did secure franchise transfers for its cable operations.
Today, franchise agreements once again are at the center of a furious fight between communications industry participants. Recognizing that local control over service authorization could stymie their efforts to build video-delivery networks, telephone companies have lobbied hard – and with astonishing success – to obviate the things altogether. By convincing state legislators to authorize laws that grant statewide franchises, and by gaining important leverage over the issue with the Federal Communications Commission, telephone providers have circumvented exactly the same obstacle Paramount Communications once identified as a potential blockade to a precedent-setting media industry transaction.
Based on the current legislative trends, it’s possible that local cable franchise agreements never again will rise to the fore as an influence in how, or whether, deals get done at a larger level. But for a time during the spring of 1989, with the business world fixated on its own deal of the century, they had their moment in the bright Hollywood spotlight.