Paramount’s Board Declined Earlier Viacom Bid, QVC Says : Mergers: An offer similar to the current one was deemed inadequate in July. A ruling on Paramount’s ‘poison pill’ is expected within a few days.

Seeking to undo a friendly merger agreement between Paramount Communications Inc. and Viacom Inc., QVC Network Inc.’s lawyer on Tuesday detailed how Paramount’s board rejected a similar offer by Viacom in July. But a Delaware Chancery Court judge withheld a ruling in the case.

Judge Jack Jacobs, presiding over a daylong court hearing, indicated that he will hand down a decision within the next few days. He gave few hints of which way he was leaning but appeared skeptical of several of Paramount’s arguments in support of the Viacom deal.

Paramount shares continued to fall Tuesday, as investors decided to collect their profits in cash now instead of waiting to participate in the partial tender offers by Viacom or QVC. If more than 51% of the shares are tendered, stockholders will wind up receiving Viacom or QVC securities at a later date, instead of cash.

Paramount shares sank $1.75 to close at $78.375 on the New York Stock Exchange. Viacom A slid $1.375 to $51.75, while Viacom B fell $2.125 to $43.375. QVC declined 87.5 cents to close at $50.875.

QVC cannot go forward with its competing bid unless the court strikes down Paramount’s so-called “poison pill” defense mechanism. It is also seeking to overturn provisions that grant Viacom a $100-million fee and options to buy more than 23 million new Paramount shares that would net Viacom nearly $500 million.

In a scene that was reminiscent of the takeover-crazed ‘80s, brokers and others hoping to gain an inside track on the case fanned out through the courthouse building and onto the steps, chattering on their cellular phones at breaks.

The biggest revelation came when QVC lawyer Herbert Wachtell told the court that Paramount’s board had turned down a merger deal with Viacom on July 7 that included more cash and the same amount of stock as the deal the two companies struck on Sept. 12.

The latter deal became more valuable following a run-up in Viacom’s stock, which QVC alleges resulted from Chairman Sumner Redstone’s aggressive Viacom buying.

Paramount and Viacom did not directly address Wachtell’s point in court, but both companies indirectly indicated that the first Viacom offer was rejected because the price was too low.

Experts say that the outcome of the QVC case will hinge on the judge’s interpretation of rulings from several of the most celebrated merger cases from the 1980s, including the Time Warner marriage, the battle for Macmillan Inc. and the acquisition of Revlon.

QVC argued that its case is similar to Revlon’s, where the court ruled that the company had put itself up for sale and thus was obliged to sell to the highest bidder. In such cases, poison pills or other provisions that block competing bids are unlawful.

Paramount countered that the real analog is Time Warner, where the Delaware Supreme Court ruled that company boards of directors have discretion to enter into strategic mergers based on factors other than price. The merger with Viacom, Paramount claims, is the best deal for shareholders in the long term even if QVC’s offer looks better in the short term.

Ironically, the Time Warner precedent was a result of Paramount’s effort to derail that merger and acquire Time Inc. That irony was carried to extremes when Wachtell, a noted New York lawyer, on Tuesday argued the exact opposite position from the one he made against Paramount four years ago.

Barry R. Ostrager, representing Paramount, happily quoted Wachtell’s previous claim that it was “totally illogical” and “totally preposterous” to argue that because a company entered into a strategic merger agreement it had effectively put itself up for auction.

In addition, Ostrager argued that QVC’s offer was “illusory” because it did not yet have guaranteed financing and was still subject to regulatory approval.

Jacobs appeared skeptical that QVC’s bid was not a bona fide offer, pressing Ostrager on what would qualify it as such. He also probed how the board had evaluated the long-term value of the Viacom stock that represents about half its current purchase offer.

Wachtell argued that there wasn’t any such analysis, that the board had never commissioned a proper side-by-side comparison of the long-term value of the offers.

Paramount contends that the strategic benefits of the merger with Viacom mean that Viacom stock will be worth much more in the long run than QVC stock following a merger, but no data was presented to support that judgment.

Meanwhile, Paramount filed more documents at the Securities and Exchange Commission, detailing the reasons its board rejected the $90-per-share QVC offer, “despite the higher blended current per-share value” at the time of the day-earlier board meeting.

Most of the objections centered on financing uncertainties. Paramount noted that QVC’s bid depends in large measure on $1.5 billion from BellSouth Corp., but BellSouth so far has just a “non-binding” memorandum of understanding with QVC.