The much-anticipated bidding war for Paramount Communications Inc. erupted Monday with a $9.5-billion offer from Barry Diller, chairman of home shopping’s QVC Network Inc.
The bid, which tops a deal Viacom Inc. has struck with Paramount, points up the cable TV industry’s hunger for programming. Companies such as QVC and Viacom see Paramount as their last chance to snare a big film library because every other major studio has changed management or ownership in the last decade.
On a personal level, the new offer pits 51-year-old Diller, a former Paramount Pictures chief, against his longtime friend, Viacom Chairman Sumner Redstone, and his onetime boss, Paramount Chairman Martin S. Davis.
Diller guided the studio through one of its most successful periods until a falling out with Davis drove him away in the early 1980s. Although critical of Paramount’s performance under Davis, Diller has told friends he will not engage in a mudslinging contest.
In a bold move that underscores the value of Hollywood studios, QVC more than trebled the amount of cash contained in Viacom’s offer to buy Paramount.
Diller’s offer is backed by a $1-billion commitment from investment partners Comcast Corp. and Liberty Media Corp. QVC offered to exchange 0.893 shares of its stock and $30 in cash for each share of Paramount, compared to the Viacom offer that contains just $9.10-a-share in cash.
In a statement, Paramount said Viacom is the “best fit,” but promised that its board would evaluate the QVC proposal. Viacom said it remains committed to the deal.
Viacom is expected to sweeten its $8.2-billion offer, which has deteriorated in value as Viacom’s price dropped on the American Stock Exchange. The value of QVC’s bid could deteriorate in a similar manner, because neither Viacom nor QVC have guaranteed Paramount shareholders a minimum value in their proposed deals.
Ultimately, Paramount shareholders must vote on which of the stock-and-cash offers to accept.
“Every bid is going to change several times,” said Mario Gabelli, a portfolio manager whose largest holding is Paramount, with about 5.5 million shares. “This going to be . . . a three-month tit for tat.”
Indeed, industry sources said Monday that cable mogul Ted Turner continues to pursue ways to bid for Paramount, having won his board’s permission Friday to do so. Over the weekend, Turner met with Diller to discuss the possibility of joining the QVC bid--and one member of the QVC camp said he would not rule out that possibility.
Behind both QVC and Turner stands the most powerful cable titan of all--John Malone, who is chairman of Liberty Media but also chief executive of Tele-Communications Inc., the giant cable TV operator that owns 24.7% of Turner Broadcasting System Inc. Malone has come close to investing in studios before--namely Tri-Star Pictures, MGM and Paramount--but this is the first time a hostile bid has been launched.
Malone has “obviously crossed the bridge,” said one Hollywood executive, predicting that Redstone--a lawyer--is “getting a legal arsenal out” to explore any antitrust challenge he can mount. Through his two companies, Malone serves nearly 20% of the cable TV homes in the United States, and politicians have expressed concern over the cable operators’ ability to set prices and determine what programming reaches the home.
Malone has kept a low profile in recent days: He did not attend the Turner board meeting Friday in Atlanta or even participate by telephone, according to one source.
Turner, meanwhile, must find a way to placate Time Warner Inc., the entertainment giant that is one of his largest shareholders and owner of Warner Bros. studio. Time Warner could block a Turner bid for Paramount unless it is paid handsomely to go away. It is expected to demand some coveted Turner assets in a tax-free deal.
Wall Street anticipated the QVC bid on Monday. Paramount’s stock reached new heights, closing up $1.25 a share, at $69.75, on the New York Stock Exchange. Since Aug. 27, when the Viacom-Paramount talks were reported, Paramount shares have increased nearly 28% in value.
Viacom A shares declined 62 1/2 cents to $59.25 Monday, while its B shares fell 50 cents to $53.50.
Anticipation of QVC’s hostile bid hurt its own stock price Monday, driving its price down $3.50 to $56 per share, reflecting some investors’ concern that Diller will be distracted from his core retailing business. Since July, QVC has been trying to complete a proposed $1.4-billion merger with Home Shopping Network Inc.
Again, Malone and Comcast are the guiding hands behind the proposal to merge the two giant TV home shopping networks, which combined would have revenues of more than $2.5 billion annually.
Malone, through Liberty Media, controls St. Petersburg, Fla.-based Home Shopping Network. In July, the company agreed to a stock merger with QVC, in which Liberty and Comcast are partners. The Federal Trade Commission last week asked for both parties to submit more information about the proposed merger, which suggests that regulators are giving the move close scrutiny.
QVC said Monday that its merger proposal was being considered by a special committee of the Home Shopping Network board and “remains the subject of ongoing negotiations.”
“Liberty already controls HSN,” said John Field, a cable TV analyst with Hanifen Imhoff in Denver. “So Liberty is still motivated to do the deal. If timing or priority become a problem, it might get delayed, but it’s not their intention to put it off.”
Although Malone remained quiet Monday, Comcast President Brian Roberts called Diller “uniquely qualified to run Paramount.” Roberts said that with Comcast and Liberty as partners in a QVC purchase of Paramount, “you’re going to create one of the great media powerhouses in the world.”
“From the moment Diller came to QVC we knew we were going to build a major media company,” Roberts said. “We’ve said for years we’d like to become a major player in programming. The pitfall is too many people try to do it themselves. So we needed to find a partner who did.”