Time Warner Inc. investors filed a class-action lawsuit Tuesday, claiming its board implemented a poison pill plan last week not to protect them against a creeping takeover but to safeguard its own management.
Several lawyers and one major holder of Time Warner dismissed the suit as “nonsense.”
“These suits are always filed after this type of transaction is announced,” said one Delaware attorney. “It’s important to have your action filed so you get in line (for a possible judgment). It keeps your place like a bookmark.” Time Warner shares dipped $ 1 to close at $ 39.50 a share Tuesday.
The entertainment colossus unveiled the poison pill Jan. 20 immediately after Seagram Co. announced its stake in the media titan had grown to 11.7% of the 375 million shares outstanding from its initial 5.7% investment made last May. The Canada-based distiller has said previously that it did not intend to acquire more than 15% of Time Warner.
Time Warner said its decision did not interfere with Seagram’s intentions but added that several big investors had noted the possibility of Seagram taking control without paying a premium. A poison pill makes a hostile acquisition outrageously expensive. Hostile tender offers tend to involve all-cash bids rather than stock swaps, and Time Warner would be far too pricey a purchase for suitors.
A spokesman said Time Warner was “confident of the strength of its legal position and sees no basis for this suit.”
What’s more, topper Gerald Levin told reporters at the National Assn. of Television Program Executives convention Tuesday, there are no plans to offer Seagram or president/chief operating officer Edgar Bronfman Jr. board seats, nor had he been asked to do so. Levin also said Time Warner would like to shrink the size of its board — now 15 members.
A legal pundit in Gotham said the suit contradicts itself because the plaintiffs first allege Seagram “is a friendly investor and is not interested in obtaining control of Time Warner” but it later seeks damages on the basis that Seagram is indeed a serious suitor for the company.
“The plaintiffs will need evidence that clearly and specifically indicates that entrenchment was the directors’ intent,” he said.