Is Time Warner's Zigging And Zagging Leading Anywhere?

Six months ago, Gerald M. Levin seemed under siege, vulnerable to a takeover by his largest shareholder, Seagram Co. Now, the chairman of Time Warner Inc. has taken the offensive: Levin's overture to General Electric about buying NBC is the latest in a flurry of moves that have left Time Warner watchers surprised, impressed, and more than a little puzzled.

In addition to the NBC talks, Levin recently offered $1 billion to buy TeleCable Corp., the nation's 18th-largest cable operator--only to be outbid by cable titan John C. Malone. He selected the first outsider ever as editor-in-chief of Time Inc. And though the company denies it, executives close to Time Warner say he considered selling off two parts of the magazine division: Southern Progress Corp. and Sunset Publishing Corp. On top of that, Time Warner is still racing to open the first lane of the Information Highway in Orlando by late 1994.

Bankers and Time Warner insiders caution that the NBC talks may never result in a deal. Indeed, sources say a second, unidentified, bidder has entered the fray. But whatever the outcome, Levin's interest points up a startling change in his strategy: After talking about interactive cable for two years, he now seems determined to plunge into plain-vanilla broadcasting. Says one executive close to Time Warner: "There are a bunch of people standing around the company scratching their heads." Levin declined comment.

PARAMOUNT CONCERN. Some of Levin's colleagues attribute his shift to shrewd opportunism. General Electric Co. finally seems ready to sell NBC Inc. And with federal TV regulations falling away, Warner Bros. Inc. is desperately trying to lock in distribution for its programs. The studio had even started its own network, called WB, which it still plans to launch in January. But the WB Network is lagging behind a rival network backed by Viacom Inc.'s Paramount Communications. Owning NBC would help Levin avoid an uphill struggle with Paramount.

Most outsiders, though, haven't a clue as to how Time Warner would finance the deal. Levin has pledged $4 billion to upgrade the company's cable systems for interactive services by 1998. Bankers say NBC could cost $2.5 billion, even without its TV stations, which Time Warner is prohibited from owning. What's more, the company is still shouldering $13.9 billion in total debt. And despite rumors, insiders say an outright sale of the magazine division is unlikely. "The situation isn't bleak," says one executive, "but it is muddled."

One possibility: Levin could sell Time Warner's cable systems. "A lot of companies are reassessing their ability to grow in cable" in the wake of reregulation, says Michael J. Wolf, partner in charge of media at Booz, Allen & Hamilton. On the other hand, insiders note that Levin bid aggressively for TeleCable when that company was auctioned off last month. Tele-Communications Inc. CEO Malone spirited it away with a last-minute offer of more than $1 billion.

Insiders offer various explanations for Levin's zigzag course. Some say broadcasting is simply more attractive than cable right now. Levin once trumpeted the Orlando system as a test site for newfangled services. But technical glitches pushed back its launch from April to late 1994. And executives say consumers are lukewarm to the new offerings. Other colleagues say Levin merely reflects Time Warner's decentralized structure. "This isn't one company," says an insider. "This is five companies." For the moment, Warner Chief Robert A. Daly has the boss's ear.

Finally, some think Levin has been emboldened after facing down Seagram--which owns 15% of Time Warner--without having to offer Seagram scion Edgar Bronfman Jr. a board seat. Certainly, Levin is making waves elsewhere in the company. Some insiders think he committed apostasy by choosing Norman Pearlstine, former managing editor of The Wall Street Journal, as editor-in-chief of Time Inc.

If an outsider can preside over the house that Luce built, maybe buying NBC isn't a stretch. And anyway, Levin may have another idea next month.