Viacom Won’t Seek New Investors to Shore Up Its Bid for Paramount

Viacom Inc. Chairman Sumner Redstone, under pressure from Wall Street to raise his bid for Paramount Communications Inc., has told his directors that he will not bring any additional investors into the Viacom camp, knowledgeable sources said Friday.

Redstone’s position, reportedly outlined at Viacom’s Thursday board meeting, led analysts to question whether Redstone is willing to match or better a rival bid from QVC Network Inc. The Viacom chairman has not given any indication of when he might respond to QVC.

Viacom has already amassed a war chest of $1.8 billion from additional investors that could be used to help raise the cash portion of its bid.

Meanwhile, QVC Chairman Barry Diller intentionally omitted certain Paramount board members from a Delaware lawsuit challenging aspects of the company’s merger agreement with Viacom. Diller, a former chairman of the Paramount studio, said he did not want those directors working as Paramount employees to be held personally liable.

Among those omitted: Paramount President Stanley R. Jaffe, Paramount general counsel Donald Oresman and investment banker Lester Pollack, a partner of the Lazard, Freres firm advising Paramount. Chief Financial Officer Ronald L. Nelson was inadvertently named as a defendant in the initial complaint, but the lawsuit was amended to drop his name. Paramount Chairman Martin S. Davis remains a target.

Also on Friday, Viacom announced that Blockbuster Entertainment Corp. has bought, as expected, $600 million in cumulative convertible preferred stock. The shares, which convert into Class B non-voting common stock, carry a 5% dividend and equal about 3% on a fully diluted basis.

Previously, Viacom reached a similar agreement with Nynex to invest $1.2 billion in Viacom. The Nynex deal has not been completed, but Viacom said Friday that the waiting period under the Hart-Scott-Rodino Act for its proposed merger with Paramount has passed, indicating that the Justice Department will not stand in the way of the transaction on antitrust grounds.

Redstone’s apparent unwillingness to bring additional investors into Viacom does not mean he will not raise the cash part of his bid, which currently stands at $9.10 per share, compared to QVC’s offer of $30 per share in cash.

Analysts have widely expected Redstone to revise his bid by enriching the cash portion of his offer. Some on Wall Street expect an announcement as early as this weekend in order to blunt QVC’s hostile tender offer, which is scheduled to be launched Wednesday.

“The bottom line is Redstone has to choose to either substantially increase his bid or get out of the running,” said Peter Appert, a media analyst with C.J. Lawrence Inc. in New York. “There is no way he can succeed without raising it.”

That pressure grew more intense Thursday, when QVC announced its $80-per-share tender offer for 51% of Paramount. If the offer is completed, QVC will then move on to the second step in acquiring the rest of Paramount by exchanging 1.42857 shares of QVC common stock for each of the remaining Paramount shares.