Paramount Study Favors Viacom Deal

In another strange twist in the merger wars, Paramount Communications is said to be sitting on a report which says there’s roughly eight times more long-term shareholder value in a merger with Viacom than with rival QVC Network.

The shareholder value study by Booz Allen & Hamilton Inc. was presented to Paramount’s directors at a special Oct. 24 meeting in New York. Sources say the board has taken the report under advisement and is using it as part of its justification for remaining allied with Viacom.

Skeptics Monday questioned the validity of a report commissioned and paid for by Paramount, especially given the wide disparity in value assigned to the two merger proposals. One executive described it as “really odd.” Another said that shareholder value studies are routinely skewed toward the client, “no matter how hard the consultant tries to be fair.”

But sources close to Paramount defended the findings, as the company’s board again reiterated its opposition to a QVC merger in a securities filing Monday.

“A report like this supports management’s contention that it is in fact a strategic merger,” said one knowledgeable source. “And the board closely scrutinized it in making its decision to continue along the path with Viacom.”

Paramount apparently has no plans for publicly releasing the report, at least not right away. However, sources say QVC obtained a copy during the discovery process of its Delaware lawsuit challenging the Paramount-Viacom merger.

QVC has asked the court to block the merger on grounds that Paramount should have consulted with QVC before negotiating a revised merger agreement with Viacom. While the Booz Allen report is under seal, legal documents show QVC subsequently subpoenaed a Booz Allen executive for a deposition in the case.

Booz Allen, a leading international management and technology consulting firm, was first linked to Paramount in a brief report that recently appeared in the trade publication Inside Media. In that article, Paramount President Stanley R. Jaffe was quoted as saying Booz Allen was involved in the merger talks with Viacom, but he did not elaborate. On Monday, a Paramount spokesman said Jaffe was referring only to a past association with Booz Allen.

Paramount, Booz Allen and QVC declined to comment on the report Monday. However, sources say it basically analyzes the long-range shareholder value created by combining the assets of Paramount and Viacom, as opposed to the value of a Paramount-QVC marriage. The report was presented to the board by Michael Wolf, a partner in Booz Allen’s New York office, according to people at the meeting. A summary version was available two days before the board met.

One source said the lengthy report valued Viacom some $3 billion higher than QVC in combination with Paramount--on a long-term basis. Others close to the talks refused to confirm that figure.

Booz Allen’s findings were apparently based on the management company’s contention that there is a much more favorable meshing of organizations under the Paramount-Viacom scenario.

“A lot of it has to do with overlap,” said one source close to the talks. “The feeling was that there’s more value created for shareholders because of the complementary assets of Paramount and Viacom. The value comes mainly from new business opportunities.”

Viacom upped the stakes in the negotiations over the weekend with an announcement that it was increasing its offer to $85 a share, which adds roughly 7% in value to a deal already in the $10-billion range.

Deal watchers are now waiting for QVC Chief Executive Barry Diller’s countermove. Diller, who may have to return with $90 a share or more to remain competitive, is said to be in advanced discussions to bring BellSouth in as a partner.

Sources say Diller is also in talks with his existing investors. One of them, Advance Publications, is said to be considering doubling its investment to $1 billion.

It’s unclear what, if any, impact the Booz Allen report will have on negotiations, which are entering their eighth week and have set off a whole wave of other media merger discussions. Sources speculated that Paramount might use it to defend itself against shareholder lawsuits that may result from a merger with Viacom.

One source found it unusual that Paramount had commissioned the report in the first place, given that investment bankers normally analyze the values of such deals. But in this instance, Paramount wanted an added business perspective on the deal, sources said.

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I Got You, Babe: In the latest issue of HITS, the unusually lively music industry trade magazine, there’s a satirical reference to Frank Sinatra teaming up with U2 singer Bono for one of the tracks on his new album, “Duets.”

Capitol Records has high hopes for the album, which marks Sinatra’s return to the label. Sources say the company expects it to enter this week’s pop charts at No. 2.

One album track features Sinatra and Bono singing “I’ve Got You Under My Skin.” HITS jokes that the only awkward thing about the collaboration was that Sinatra “kept calling Bono ‘Sonny.’ ”