QVC Ponders Next Move : Viacom’s New Bid Keeps Barry Diller Busy in Talks

QVC Network Inc. will have to increase its hostile bid for Paramount Communications to more than $90 a share and find investors willing to add more cash to the deal if it hopes to prevail against rival Viacom Inc., analysts and other knowledgeable sources said Sunday.

QVC Chief Executive Barry Diller was in Los Angeles over the weekend, and in discussions with his partners about how to respond to Viacom’s increased tender offer of $85 a share. The action, which caught the QVC camp off guard, was aimed at disrupting crucial talks Diller was having to recast his bid.

Before Viacom’s weekend move, both companies had comparable cash-and-stock bids for Paramount worth about $10 billion. Viacom’s revised offer boosts the overall value of its friendly bid by about 7%.

The sweetened bid comes as both sides are said to be growing increasingly weary and short-tempered, with the takeover battle dragging into its seventh week. The ever more complicated matrix of partners and potential investors is even now pitting brother against brother.

One of the investment bankers advising BellSouth on a possible partnership with QVC is Mike Biondi, the brother of Viacom Chief Executive Frank Biondi. The Baby Bell is reportedly considering an investment of as much as $2 billion in QVC and in its bid for Paramount.

In addition, Advance Publications, the media empire owned by the Newhouse family, is said to be willing to increase its proposed investment in QVC to $1 billion from $500 million, sources said. The BellSouth and Advance investments could help QVC raise its bid.

But such an investment is likely to exact a toll. The more Diller relies on partners to succeed in his Paramount bid, the more autonomy he will have to cede to those investors.

If BellSouth invests in QVC, it would probably replace Liberty Media Corp. Liberty owns 22% of QVC and agreed to invest another $500 million toward its Paramount bid. But the company, an affiliate of cable giant Tele-Communications Inc., is considering divesting its interest over regulatory concerns that TCI is wielding too much influence in the converging cable, telecommunications and entertainment industries.

QVC has until Wednesday to revise its Paramount bid if it wants to maintain a tactical advantage before its tender offer expires on Nov. 24.

Although Viacom’s tender offer expires two days before QVC’s, Paramount shareholders must have 10 business days to consider a revised offer. Therefore, by acting no earlier than Wednesday, QVC could force Viacom to amend its bid.

That would have the effect of postponing the expiration of its tender offer 10 days, giving the time advantage back to QVC.

Analysts do not see Viacom’s decision to raise its bid as a decisive move.

“It’s difficult to believe this is a move intended to win the company,” said S.G. Warburg’s Lisbeth Baron. “It was clear that Diller had to raise his bid more than $5.”

Baron said Viacom’s surprise move is designed to “put pressure on Diller to see if he can raise more funds than he might have had to, and potentially to go home” with a higher value for the lockup agreement.

Under the lockup agreement, Viacom could reap nearly $600 million if QVC acquires Paramount.

Who’s on First? As Viacom Raises the ante in the battle for Paramount, QVC’s alliances seem to get more tangled and confused every day. Here is a rundown of where the players stand as of now.

Paramount:

The shifting coalition is backing QVC’s hostile bid for Paramount, worth about $9.5 billion as of Friday.

QVC:

TCI:

Originally one of QVC’s chief backers, cable operator Tele-Communications Inc. has sought to distance itself from the Paramount deal in recent weeks as it confronts regulatory concerns arising from its proposed merger with Bell Atlantic.

HSN:

Further severing its ties with TCI, QVC last week broke off merger talks with Home Shopping Network, partly owned by Liberty.

Liberty:

As a result, TCI affiliate Liberty Media is expected to sell its 22% stake in QVC to regional telephone company BellSouth. TCI owns 5% of Liberty and has agreed to acquire the rest.

Comcast, Cox, Advance:

Comcast Corp., Cox Enterprises and Advance Publications have so far agreed to invest $500 million each toward QVC’s purchase of Paramount. Advance may up its investment to $1 billion. In addition, Southwestern Bell and Cox are said to be close to an agreement that would create a new powerful cable TV company.

BellSouth:

BellSouth is expected to invest about $2 billion in QVC, taking the place of Liberty.