The proxy season "begins" on a disturbing note, albeit one that revives in its own way the entertaining corporate defense and acquisition language characteristic of the 1980s.
In this recent case, Time Warner Inc. worries about getting "Tisched" and adopts a "chewable" poison pill to restrain a creeping acquisition of its shares by Seagram Co. In doing so, Time Warner's management and board of directors receive, not the rancor, but the endorsement of the California Public Employees' Retirement System, which has been in recent years the most outspoken defender of shareholder interests.
The company's action - occurring in fact in January, before the start of the perennial proxy ritual but well within the realm of corporate governance - prevents an investor from acquiring more than 15% of its stock without the approval of the board of directors.
The question is: has CalPERS softened its efforts on behalf of shareholder value? In this case, terribly so. Shareholders have Seagram's purchases of shares on the open market to thank for boosting the value recently of Time Warner stock.
In defense, Richard Koppes, CalPERS general counsel, said management deserves some time to realize its strategic plan of building a global communications and entertainment company. He notes, in fact, CalPERS had placed Time Warner on its corporate governance target list in 1991 and 1992. Time Warner, responsive to the gripes, restructured its board of directors to CalPERS' liking, eliminating most insiders. Importantly, he added, Time Warner's stock, since the merger of Time Inc. with Warner Communications Inc., has done well.
Further, he notes CalPERS, while it generally opposes anti-takeover devices, has supported such pills at Lockheed Corp., Polaroid Corp. and Texaco Inc. The Time Warner poison pill, he says, is less "toxic" than others, thus, "chewable," dissolving if an acquirer made an all-cash offer.
But the facts suggests all this defense on the part of Time Warner and CalPERS is nonsense.
First, shareholders have no vote on whether they want the pill.
Second, on being "Tisched," its questionable that Laurence Tisch, as is said, gained control of CBS Inc. by quietly buying the stock on the open market without paying a premium and without the directors' consent. In fact, it appears Seagram already is paying a premium, even a dear one, for its non-controlling interest, now at 13.1% and still growing, causing the stock to rise to the upper 30s, instead of languishing in the low 30s.
Although Time Warner's stock has performed well since Gerald M. Levin became chairman, it is still below the $50 per share offered by Paramount Communications Inc. in 1989. The Time and Warner companies defeated a counteroffer by Paramount, arguing for a chance to implement their combined strategic vision.
Mr. Levin was the reputed architect of Time's merger with Warner. But after four years, Time Warner management should need no protection to pursue its strategy, which by now Wall Street should fully understand. If the Street thought it likely to be successful, the stock price would rise to reflect that, making any takeover difficult. As of now, the markets give all future earnings expected to come from Mr. Levin's vision an uninspiring present value, suggesting they are still skeptical.
In view of CalPERS' decision, let's hope, somehow, Seagram, or some other investor, keeps up the spirited pressure on Time Warner.
