The nation's two largest cable television system operators -- Time Inc. and Tele-Communications Inc. -- have joined forces to make a $1.25 billion offer to buy Warner Amex Cable Communications Inc., the sixth-largest cable TV network, Wall Street investment banking sources said yesterday.
Denver-based Tele-Communications Inc. is the nation's largest cable operator, and Time's cable operations are the second-largest in the business.
Several analysts said Time and Tele-Communications joined forces to make the bid because they want to share the risk of buying the Warner Amex cable system, which had a pretax loss of about $94 million last year.
Warner Amex, a troubled partnership between Warner Communications Inc. and American Express Co., owns 104 local cable systems with 1.2 million customers.
American Express has indicated that it wants to sell its interest in the cable system, while Warner needs cash and may reluctantly be forced to sell.
Sources said that neither Warner Communications nor American Express can sell its stake in Warner Amex without offering it to the other party first.
"Warner and American Express are not on friendly terms these days," said one investment banker familiar with the bidding for Warner Amex. "But Warner is in a position now where it can really clean house by selling Warner Amex for $750 million plus the assumption of all the debt about $550 million ."
At a total price of $1.25 billion, the offer by Time and Tele-Communications amounts to more than $1,000 for each subscriber.
The Wall Street source said, "Time has a partner because its strategy is not to make an enormous acquisition in cable, but to selectively add systems in certain areas.
And with deregulation of cable rates , the profit potential in cable becomes very large. Also, there has not been a commensurate runup in cable prices like there has been for television stations."
Other parties reportedly interested in buying Warner Amex are Viacom International Inc., the nation's 10th-largest cable television system operator, and a separate group of investors led by Warner Amex management. Former Department of Transportation Secretary Drew Lewis is chairman and chief executive officer of Warner Amex.
"This property has been shopped around, and I don't see any bidding war coming," said Merrill Lynch analyst Harold Vogel.
"Warner Amex has indicated there would be a change," added Vogel, referring to a statement on May 14 in which Warner Amex said it had received several expressions of interest in buying the giant cable system and its two-thirds interest in MTV Networks Inc.
Warner Amex and its parent companies declined to comment on the situation yesterday, as did Time, Tele-Communications and Viacom.
Warner Amex cut its pretax losses from $150 million in 1983 to $94 million last year while boosting its revenue to $473 million from $438 million in 1983. Warner Amex's net loss declined from $99 million in 1983 to $25 million last year, while the company cut its debt from $852 million to $550 million.
There have been reports recently that Warner Chairman Steven J. Ross is trying to put together a leveraged buyout of the parent company, in which he would lead a group of investors who purchase Warner Communications public stock and take the company private.
Ross also is reported to be working on a plan to sever Warner's ties with Chris-Craft Industries Inc.
Chris-Craft controls about 30 percent of Warner's voting stock, while Warner owns about 40 percent of Chris-Craft's broadcasting subsidiary.
Merrill Lynch's Vogel said Warner may try to buy back the stock owned by Chris-Craft with a combination of funds generated by the sale of Warner Amex and its 40 percent stake in Chris-Craft broadcasting.