Seagram Sells Half Its Stake in Time Warner

Seagram Co. on Wednesday disclosed that it divested more than half its stock in Time Warner Inc. for $1.39 billion. The investment shook up the entertainment world when it was disclosed four years ago, but it has turned out to be a major disappointment for the Montreal-based beverage and entertainment firm.

Taking advantage of Time Warner’s surging stock price in recent weeks, Seagram said it sold the shares to investment bank Merrill Lynch & Co., adding that net proceeds after taxes would be $1.33 billion. Seagram said it would use the proceeds for general corporate purposes such as paying down debt and also the repurchase of Seagram stock.

Sources said that by the end of the day, Merrill Lynch had already sold off the shares to various institutional investors.

Seagram sold the shares at $46.33 each. The company still holds 23.6 million shares, which it promised Merrill Lynch it would not sell without its permission for the next four months. Seagram’s average cost on the 56.8 million shares it owned was $38.20 a share.

Seagram first disclosed publicly that it was accumulating Time Warner stock four years ago this week. That disclosure triggered tensions between Seagram Chief Executive Edgar Bronfman Jr. and Time Warner Chief Executive Gerald M. Levin and led to speculation that Seagram might eventually launch a massive hostile bid for the media and communications giant. Shortly after the Seagram purchase, Time Warner enacted a “poison pill” defense measure, causing even more tensions between the companies.

In June 1995, Seagram opted to spend $5.7 billion to buy control of MCA Inc., since renamed Universal Studios Inc., from Japan’s Matsushita Electric Industrial Co. Since then, Seagram executives have made it clear that it was only a matter of time before they would sell the Time Warner stock, provided it rose from its historically lagging price of less than $40 a share.

That finally happened over the last few weeks as investors became more bullish on the company and confident that it would eventually sort out some of its sticky deals, such an its ill-fated alliance with telephone company US West.

On Wednesday, Bronfman called Levin to tell him that the shares were being sold. Time Warner stock, suffering some from the flood of shares into the market, closed at $47.25 a share, down $1.625 on the New York Stock Exchange.

Although Seagram technically made a profit on the sale, the four-year period it held the stock marks a lost opportunity. Numerous other investments in the bull market--the Dow Jones industrial average more than doubled in the period--have far outperformed Time Warner stock. The price Seagram received Wednesday was only 20% above the average price at which it acquired the stock, a lethargic return on the funds invested.

A Time Warner spokesman said: “We have been aware for some time that our stock has not been a core holding for Seagram. We have every confidence that our new shareholders will enjoy appreciation in our stock over time.”

In a statement, Bronfman said that since the Universal Studios purchase, “our position in Time Warner has been nonstrategic. 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.”

In tandem with the announcement of the stock sale, Seagram said its board authorized an increase in the size of its share-repurchase program to as many as 23.6 million shares.

Seagram shares closed at $39.125, down 37.5 cents on the NYSE.