NEW YORK — Universal Studios parent Seagram Co. Ltd. began its long-awaited exit from Time Warner Inc. Wednesday when it sold just over half its 11% stake to a group of institutional investors for about $1.39 billion.
Taking advantage of Time Warner’s recent rally on Wall Street, which has taken its price to an all-time high of $49.12 over the past couple of weeks, Seagram sold 30 million of its 56 million shares to Wall Street giant Merrill Lynch, which in turn placed the stock with various clients, Wall Street sources said.
Seagram promised Merrill Lynch not to sell its remaining stake for at least 120 days, to avoid putting pressure on Time Warner’s stock price, although Seagram CEO Edgar Bronfman hinted in a statement confirming the sale that he might hold on to the remaining shares for a longer period.
“Given the recent price improvement in Time Warner stock, we believe this was an appropriate time to reduce the size of our holdings. We remain a significant shareholder and see prospects for further appreciation in the price of Time Warner stock,” Bronfman said.
He noted that the TW shareholding, acquired in 1993-94 for $2.17 billion, had been “non-strategic” since the liquor giant bought a controlling interest in Universal in April 1995.
Seagram sold well under the recent market price, receiving about $46.33 a share, and the stock dropped $1.62 to $47.25 at the close of the day’s trading. Still, Seagram should record a profit of about $250 million on the trade, before interest expense on the debt used to pay for the investment. Seagram’s average purchase price was $38 a share.
While the timing was dictated by Time Warner’s recent stock performance, the funds will come in handy should Seagram’s Universal Studios Inc. pursue the acquisition of Viacom Inc.’s 50% of cable’s USA Network, as is expected following the Delaware Chancery Court’s recent decision in favor of Universal.
Such a deal could happen soon as the court ordered the two companies two weeks ago to come up with proposals to break up the partnership within a month. Some indication of the price of the deal can be gauged from the $1.45 billion price put on Universal’s 50% of USA in talks between the two companies before the trial concerning their partnership dispute.
In its statement confirming the sale, Seagram said it would use the after-tax proceeds of $1.33 billion to repay debt and buy back Seagram stock under an expanded buyback program. The company had long-term debt of $2.5 billion at last balance date of June 30, 1996.
The sale is good news for Time Warner, removing uncertainty hanging over a big block of stock. Seagram was the biggest shareholder in the company, holding 14.95% until Time Warner acquired Turner Broadcasting Systems last October in a stock-deal and made Ted Turner the biggest shareholder. That deal diluted Seagram down to 11.15%.
A Time Warner spokesman said: “We have every confidence that our new shareholders will enjoy appreciation in our stock over time.”
When Seagram first bought into Time Warner, Bronfman tried to get a Time Warner board seat but was rebuffed by Time Warner chairman Gerald Levin. Bronfman subsequently turned his attention to Universal but remained aware of Time Warner’s poor performance on Wall Street and was among the investors pressuring Levin to get the price up.