The Grand Acquisitor's New Prey

By Charles P. Alexander

Does Rupert Murdoch really mean to grab Warner?

The brief letter from Rupert Murdoch's News Corp. to Warner Communications was impeccably polite, but it had the impact of a death threat. Received on Dec. 30 and made public last week, the letter announced that Murdoch's company might buy up to 49.9% of Warner's stock. Later in the week Murdoch notified the Securities and Exchange Commission that he might wage a proxy fight to "influence the managment or acquire control of the company." At Warner's Manhattan headquarters, executives quickly donned flak jackets for a takeover battle.

When Murdoch bought 7% of Warner's stock last month for $98 million, he insisted that it was only an "investment." But that claim sounded suspicious coming from a grand acquisitor. Murdoch has already bought the New York Post (for $30 million), the Boston Herald ($1 million plus a share of future profits) and the Chicago Sun-Times ($90 million) and established a sprawling publishing empire with assets of $1.5 billion that now includes more than 80 newspapers and magazines in the U.S., Britain and Australia. Wall Street immediately began to wonder if Murdoch wanted to charge into new businesses by gaining control of all or part of Warner, a troubled conglomerate (1983 revenues: about $3.5 billion) that makes movies, records, video games and computers and owns cable-television systems, Mad magazine and the New York Cosmos soccer team.

Warner Chairman Steven Ross did not wait for the Australian to make his next move. Two weeks ago, he struck up a partnership with Chris-Craft Industries that seemed tailor-made to thwart a Murdoch takeover bid. The agreement calls for Chris-Craft, a diversified New York--based manufacturer of boat engines, plastic products and chemicals, with fiscal 1983 revenues of $84.4 million and profits of $3.99 million, to acquire about 25% of Warner's stock. In return, Warner would gain a 42.5% stake in a Chris-Craft subsidiary that owns two television stations and interests in four others.

If that deal goes through and Murdoch then tries to take over Warner, he might run afoul of any number of federal laws and regulations. One is the Communications Act of 1934, which prohibits foreign ownership of broadcast licenses. Moreover, one of the Chris-Craft stations is in San Antonio, where Murdoch has two newspapers, and the Federal Communications Commission frowns on a company's owning both broadcast and print media in the same locale.

Ross seemed to have sandbagged Murdoch. But then the press lord asked the FCC last week to review the partnership proposed by Warner and Chris-Craft, arguing that if the two companies joined forces, they would illegally own both cable-TV networks and direct-broadcast stations in some cities.

Murdoch met secretly with Ross and Chris-Craft Chairman Herbert Siegel in the Manhattan offices of Allen & Co., the Australian's investment banker. Ross and Siegel reportedly tried to persuade Murdoch to sell his Warner shares, but they must have failed. Murdoch subsequently sued Warner and Chris-Craft in a Delaware state court, saying that their deal was designed merely to protect the interests of the managements of the two corporations.

Like many of Murdoch's targets, Warner has fallen on hard financial times. Until recently, Ross was hailed as a wizard for his 1976 acquisition of Atari, the video-game and computer manufacturer that cost Warner $28 million and brought it profits of more than $680 million between 1979 and 1982. But when the video-game business crashed last year, so did Warner. Atari lost $536 million in the first nine months of 1983, which wiped out healthy earnings by Warner's movie and record divisions and left the company with an overall deficit of $424.7 million.

Warner's stock plunged from a 1982 peak of 63 to a low of 19 last summer. Since Murdoch began purchasing shares in December, the stock has risen about 6 points, closing last week at 28.

Wall Street is not sure what the publisher has in mind. Some analysts think he is bluffing. According to this theory, Murdoch hopes that his overtures will boost Warner's stock enough so that he can sell his current 7% stake for a tidy profit.

Another hypothesis is that Murdoch may want to trade his Warner stock for only part of the company. One particularly attractive prize is Warner's library of more than 1,000 movies, from the 1942 classic Casablanca to the 1983 hit Risky Business. The Australian has unveiled plans to start a satellite broadcasting service next year, and Warner's film collection would provide blockbuster programs.

Murdoch, though, may have trouble pulling together the nearly $1 billion needed to buy a 49.9% share of Warner.

His company reported debts last June of $234 million, and since then he has borrowed at least $188 million. One potential source of cash is the publisher's 11% stake in Reuters. If the news agency goes public this spring as it proposes, Murdoch would receive stock worth between $100 million and $250 million.

Even if the money is available, a Warner takeover might stretch Murdoch's empire, and energy, a bit thin. Partly because he was preoccupied with the Warner affair, Murdoch failed to show up in Chicago last week for meetings to wrap up his acquisition of the Sun-Times, and formal transfer of the newspaper's ownership was postponed until this week. Observed one Sun-Times executive: "Rupert Murdoch runs not so much a company as a Byzantine court. There is only one decision maker and every day from all over the world come countless calls requiring his imprimatur."

Murdoch is accustomed to such criticism and skepticism. On many of his takeover raids he has confronted hesitant owners, hostile executives and defiant unions. On most occasions he has also persisted and prevailed. Warner executives had better keep on those flak jackets. --ByCharles P. Alexander.

Reported by Christopher Ogden/Chicago and Adam Zagorin/New York

With reporting by Christopher Ogden/Chicago and Adam Zagorin/New York