Management-Led Bid Preferred : Theater Chain’s Offer Is Rejected by Viacom

Viacom International on Tuesday rejected a week-old takeover bid from National Amusements Inc., saying it considered an earlier offer by a management-led buyout group to be superior.

In a three-sentence statement, a committee of directors of the television programming, cable and broadcast firm said only that it had “reviewed a variety of factors, including the terms and times required to complete both transactions.”

The decision shifted attention in the takeover drama to National Amusements’ Sumner M. Redstone, chairman of the movie-theater concern, expected by some now to mount a hostile tender offer for New York-based Viacom.

Analysts said the board’s statement suggested that the members believed the management-led group’s offer was preferable because it would take less time to complete, particularly in light of the Federal Communications Commission license transfers that would be required with any sale. Viacom owns five television and eight radio stations.

“That was the one advantage they clearly could cite,” said Dennis McAlpine, analyst with Oppenheimer & Co. in New York.

Preference on Wall Street

Some on Wall Street--including some of the arbitrageurs who are now assumed to hold much of the company’s stock--preferred Redstone’s offer, which was made Feb. 2.

National Amusement offered cash and preferred stock it valued at $44.75, plus a 20% share of the company that some arbitrageurs valued at $2 to $3 a share.

The offer of the management-led group, accepted by Viacom’s board last October, included $44 in cash and preferred stock, plus a 20% equity stake.

But some Wall Street professionals said they preferred Redstone’s offer because it involved a 20% stake in equity that would come to $400 million; the management group’s bid would create a new company with $81 million in equity, they said.

The leveraged-buyout group, which includes investment banks Drexel Burnham Lambert, First Boston and Donaldson Lufkin Jenrette Securities, declined further comment. Redstone did not respond to telephone calls seeking comment.

Redstone, whose group now controls nearly 20% of Viacom stock, began accumulating Viacom shares last October, and presumably would make millions if he tendered his shares to the management group.

One Step Further

But some arbitrageurs speculated that he would take his bid one step further, mounting a tender offer conditioned on management’s withdrawing the “poison pill” anti-takeover provisions that are now in place.

Such an offer might increase pressure on the Viacom board to offer more for the company’s outstanding shares.

It might also cause the Viacom board to try to remove Redstone’s threat by offering him a premium price--greenmail--for his stake, arbitrageurs said.

Redstone, whose privately held company is the eighth-largest U.S. theater chain, has profited heavily by trading in stocks of takeover candidates in recent years.

But he has not yet managed any company in which he has bought stakes, analysts noted.

In 1985, Redstone made $15 million by selling back a 7.1% stake in MGM/UA Home Entertainment Group.

He earned $25 million from a 9.7% stake in Columbia Pictures when the studio was purchased by Coca-Cola Co. and $20 million when Marvin Davis bought out shareholders of Twentieth Century Fox.