Paramount’s Stock Slides as Merger Odds Shift to Viacom

Shares of Paramount Communications Inc. slid $2.875 to $80.125 on Monday amid Wall Street speculation that QVC Network Inc. will fall short in its effort to derail Viacom Inc.’s friendly merger agreement with the company in a crucial courtroom battle today.

QVC is challenging Paramount’s anti-takeover and lockup provisions in the Delaware court case, contending that they give Viacom an unfair advantage.

In a move designed to bolster Paramount’s position going into the hearing, the company’s board Monday unanimously recommended that Paramount shareholders reject QVC’s tender offer.

On Friday, QVC raised its bid to $89.83 a share, or about $10.65 billion, after receiving a $1.5-billion investment from BellSouth Corp. By considering the bid, Paramount can argue in court that it has reviewed the alternatives and still finds Viacom’s offer superior.

Analysts expect the Delaware Chancery Court to remove a “poison pill” provision that would flood the market with new Paramount stock if a hostile bid succeeded. But the court is expected to uphold a lockup agreement that would give Viacom $100 million and the right to buy 24 million Paramount shares at a discount if the cable company loses its bid. QVC Chief Executive Barry Diller faces the prospect of having to come up with an additional $600 million to buy Paramount if the lockup agreement remains intact.

Some analysts think Diller will raise his bid for Paramount one more time, but the market on Monday appeared to be betting that he wouldn’t succeed. Viacom’s Class A shares fell $1.50 to $53.125, and Class B shares tumbled $1.375 to $45.50 on the assumption that Viacom will face the strain of financing its acquisition. Shares of QVC jumped $2.125 to $51.75.

“If QVC is not going to win, then the pressure would be off its balance sheet,” said Martin Romm, an analyst at CSS First Boston.

Separately on Monday, the Federal Trade Commission voted to bar cable operator Tele-Communications Inc. and its affiliate Liberty Media Corp. from exercising any control over QVC or Paramount.