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Time Inc Presentation

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Prepared for academic purpose only based on various open sources & group discussions

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Time Inc Presentation

  1. 1. Presented by Debi Prasad Bagria Kishor Chandwani Nandini Mudgil Mrinmoy Kanti Das Rahul Agarwal Ritesh Kumar Singh
  2. 2. <ul><li>Year 1989 March 4 – Time announced Merger Plan </li></ul><ul><li>Time-Warner’s proposed merger </li></ul><ul><li>Year 1989 June 6 : Hostile bid by Paramount - cash tender offer for all of Time’s outstanding shares @ $175 per share </li></ul><ul><li>Management to decide course of action </li></ul>
  3. 3. <ul><li>Formed in 1924 (by Henry Luce and Briton Hadden) with publishing of ‘Time’ magazine </li></ul><ul><li>Firm’s presence strengthened by acquisitions and diversification </li></ul><ul><li>Consolidation till 1989 – focus on core publishing business </li></ul>
  4. 4. <ul><li>Magazines - Largest publisher of general circulation magazines in the US </li></ul><ul><li>Books - Distribution through five publishing organizations </li></ul><ul><li>Cable TV programming- Operated HBO and Cinemax networks </li></ul><ul><li>Local cable TV franchisees- ATC (82% owned subsidiary of Time was second-largest TV franchise in the US </li></ul>
  5. 5. Refer Page-2 & Exhibit - 2
  6. 6. Refer Exhibit - 2 1984-85 1985-86 1986-87 1987-88 Magazines 12% 6% 3% 8% Books 12% 20% 44% -7% Cable TV programming 6% 13% 2% 16% Local Cable TV franchisees 15% 9% 12% 14%
  7. 7. <ul><li>Interrelation between film, television and publishing industries </li></ul><ul><li>Vertical integration in vogue- major film producers (Paramount, MCA and Warner) followed suit </li></ul><ul><li>Deregulation further promoted vertical integration </li></ul>
  8. 8. <ul><li>Steep rise (~10 times) in cost of feature film production and increase in number of feature films offered increased risk of failure </li></ul><ul><li>Less investment made entry into production of TV programs more lucrative </li></ul><ul><li>Sharp increase in demand of high quality programming due to proliferation of cable networks </li></ul><ul><li>Cable programmers a direct competition for broadcast networks </li></ul>
  9. 9. <ul><li>Growth of magazine business not ‘fast enough’ </li></ul><ul><li>HBO and cable side of business witnessed fastest growth- contributed to almost half of Time’s earnings </li></ul><ul><li>Ownership of production became attractive due to high prices of programs </li></ul><ul><li>Risk of producing programs reduced by HBO’s guaranteed distribution channels </li></ul>
  10. 10. <ul><li>Expansion of position in ownership and creation of video programming to remain the preeminent source of information and entertainment </li></ul><ul><li>Size, through vertical integration, key to create, market and disseminate its products worldwide </li></ul>
  11. 11. <ul><li>Merger </li></ul><ul><li>A financial tool used for enhancing long-term profitability by expanding operations. </li></ul><ul><li>Occurs when the merging companies have mutual consent </li></ul><ul><li>May be horizontal, vertical, conglomerate depending on the nature of the merging companies. </li></ul><ul><li>Corporate mergers may promote monopolistic practices </li></ul><ul><li>In US any merger requires the prior approval of the Federal Trade Commission and the Department of Justice. (Began with the Sherman Act in 1890) </li></ul><ul><li>Very few mergers have actually added to the share value of the acquiring company </li></ul>
  12. 12. <ul><li>Acquisitions or takeovers </li></ul><ul><li>Occur between the bidding and the target company </li></ul><ul><li>May be either hostile or friendly takeovers. </li></ul><ul><li>Reverse takeover occurs when the target firm is larger than the bidding firm. </li></ul><ul><li>In the course of acquisitions the bidder may purchase the share or the assets of the target company </li></ul><ul><li>May be for majority stock or 100% </li></ul>
  13. 13. Lacked Local Cable Franchise Assets
  14. 15. Lacked Cable TV franchise assets
  15. 16. <ul><li>TWENTIETH CENTURY FOX </li></ul><ul><ul><li>Essentially into filmed entertainment business, producing and distributing movies and TV programming </li></ul></ul><ul><ul><li>Lacked major cable franchises </li></ul></ul>
  16. 18. <ul><li>WARNER- Added attractions </li></ul><ul><ul><li>One of top 3 studios for 15 years </li></ul></ul><ul><ul><li>Consistency in operating income </li></ul></ul><ul><ul><li>Produced and distributed made-for-television movies </li></ul></ul><ul><ul><li>Operated worldwide - theatrical distribution organization </li></ul></ul><ul><ul><li>Warner Home Video – already an industry leader </li></ul></ul><ul><ul><li>Warner Cable - Sixth-largest cable operator </li></ul></ul><ul><ul><li>Significant Debt capacity – Debt ratio 0.07 </li></ul></ul>
  17. 19. <ul><li>Potential Difficulties in WARNER Acquisition </li></ul><ul><ul><li>Cultural differences and </li></ul></ul><ul><ul><li>Management coordination issues </li></ul></ul>
  18. 21. <ul><li>PARAMOUNT- Added Attractions </li></ul><ul><ul><li>Extensive presence in filmed entertainment (theater chain, distribution, TV programming, pre-recorded video cassettes) </li></ul></ul><ul><ul><li>Extensive library and major publishing interests </li></ul></ul>
  19. 22. <ul><li>PARAMOUNT- Potential hazard </li></ul><ul><ul><li>No major cable assets (much sought-after by Time) </li></ul></ul><ul><ul><li>Finance subsidiary not fit with Time’s entertainment strategy </li></ul></ul>
  20. 23. <ul><li>Warner as most suitable Merger candidate </li></ul><ul><ul><li>Best fit with Time’s Strategic objectives </li></ul></ul><ul><ul><ul><ul><li>Highly successful movie studio – Ownership & creation of video programming </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Existing cable operation – further strengthen Time’s network </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Prominent Music business – Give new business opportunity </li></ul></ul></ul></ul><ul><ul><ul><ul><li>International Distribution Assets & Capability - Global reach </li></ul></ul></ul></ul><ul><ul><li>But </li></ul></ul><ul><ul><li>High compensation of Warner’s CEO, Steve Ross </li></ul></ul><ul><ul><li>New employment contracts and generous compensation terms to Time’s managers under the terms of merger </li></ul></ul><ul><ul><li>Management succession another major issue </li></ul></ul>
  21. 24. <ul><li>Control of joint entity important to Time board- </li></ul><ul><ul><li>Wanted Time to remain an independent company in charge of its own destiny </li></ul></ul><ul><ul><li>Wanted to preserve the editorial independence of Time’s magazines </li></ul></ul>
  22. 25. <ul><li>New company to be named Time-Warner Inc </li></ul><ul><li>New Board of Directors with 24 members- 12 from Time and 12 from Warner </li></ul><ul><li>Merger to be structured as Stock Swap- Warner shareholders to receive Time shares in return for Warner shares </li></ul><ul><li>Very clear and succinct management succession plan </li></ul>
  23. 26. <ul><li>Stock Swap- </li></ul><ul><li>Advantages </li></ul><ul><ul><li>No debt for Time to accomplish merger (Times’ Debt Rating Aa3 with Debt ratio 0.17) </li></ul></ul><ul><ul><li>Time would have financial capacity to take advantage of future opportunities </li></ul></ul><ul><ul><li>Tax-free merger of equals using ‘pooling of interest’ accounting </li></ul></ul><ul><li>Disadvantages </li></ul><ul><ul><li>Amount of time needed to complete the deal (Approval of both Time & Warner Stockholders required) </li></ul></ul><ul><li>Cash or Cash & Stock Option </li></ul><ul><ul><li>Higher financial outgo with exposure to Debt </li></ul></ul><ul><ul><li>Approval of stockholders not required, so lesser time-consuming & complication </li></ul></ul>
  24. 27. <ul><li>Paramount launched cash bid for Time for $175 a share </li></ul><ul><li>Business Judgment Rule – to realize the best sale price for the benefit of stockholders </li></ul><ul><li>Option </li></ul><ul><ul><li>Accept Paramount’s offer </li></ul></ul><ul><ul><li>Go ahead with the Warner merger </li></ul></ul>
  25. 28. Source-Exhibit-4
  26. 29. <ul><li>Merger with Warner – Higher revenue & higher market value </li></ul><ul><li>Strategic move meticulously planned and carefully crafted </li></ul><ul><li>Execution strategy in terms of Cash & Stock and Management succession was flawless </li></ul><ul><li>Only the strategy to bridge wide cultural divide between Time and Warner was missing </li></ul>
  27. 30. Thanks

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