Paramount’s Board Setting Up Bidding Format : Media: Neither QVC nor Viacom has offered to protect takeover target’s shareholders from drop in value of shares.

In a glare of publicity, the board of Paramount Communications Inc. gathered late Monday to adopt court-ordered “fair procedures” for assessing rival bids for the company.

The session in New York was expected to last into the night, so Wall Street traders said Paramount might delay any announcements until this morning.

Open to debate: how much latitude the 15-member board will conclude it has, both in setting up procedures and later, in business judgment to recommend one bid to shareholders as the “best value.”

The board’s actions will be scrutinized both by the Delaware Chancery Court and by Wall Street speculators trying to anticipate the outcome of the three-month bidding contest waged by Viacom Inc. and QVC Network Inc.

Any sign of schism among board members will also be read as disaffection with Paramount’s strong-willed chairman and chief executive, Martin S. Davis. For those reasons, some traders expected Davis to resist the formation of an independent directors’ committee, which could hire its own legal and financial advisers.

Currently, QVC, home shopping network, values its cash and stock offer at nearly $700 million more than Viacom’s bid. But neither bidder has offered to protect Paramount shareholders from a downward spiral in QVC or Viacom shares, which would be issued at some point in the future to complete the acquisition.

In stock market trading Monday, Paramount fell 75 cents to $80.375 on the New York Stock Exchange, while QVC slumped $2.25 to close at $41, off 44% from its 12-month high. Viacom Class A shares lost 62.5 cents to close at $47.50 on the American Stock Exchange, while Viacom Class B fell $1 to close at $43--down 30% from its peak price in the past year.

As recent corporate history proves, the highest bid doesn’t always win. In the celebrated 1988 auction of RJR Nabisco Inc., the board sold the company to Kohlberg Kravis Roberts & Co., even though its bid was nearly $700 million less than an offer made by a management-led group. The RJR board felt KKR would make better provisions for employees and sell fewer assets.

Wall Street traders have speculated that the Paramount board might ask the bidders to include some price protections or, alternately, have suggested that the bidders might use such guarantees to sweeten their offers without boosting the cash portion of their bids. But one QVC source protested any need to offer such safeguards, saying, “Certainly we have no reason to do it.” The same executive disputed press reports that investment banker Bruce Wasserstein has pushed to the fore among QVC’s advisers with a recommendation that QVC increase its bid and allow investor BellSouth--Wasserstein’s client--to play a bigger role. The QVC source said Wasserstein is a resource, but “he’s not pushing anything.”

Until Monday, the board has favored Viacom, which negotiated a friendly merger agreement in September that restricted the board’s ability to weigh other bids. Testimony in the Delaware court battle revealed that the Paramount board received no analysis of the competing QVC bid from advisers who said QVC’s financing was conditional.

But in a sweeping ruling, the Delaware Supreme Court last week upheld a lower court’s decision that the lock-up provisions were illegal and the Paramount board had failed in its fiduciary duty by not seriously considering the QVC offer.

Following the court decision, Paramount said it would adopt fair procedures. The company did not solicit QVC’s advice.

“We did make a very strong suggestion, in terms of how we would like things to go,” one source close to QVC said Monday, noting that Paramount said the suggestions would be taken “under advisement.”

Paramount’s Directors

* Martin S. Davis, chief executive, Paramount

* Grace J. Fippinger, former treasurer, Nynex Corp.

* Irving R. Fischer, chief executive, HRH Construction Co.

* Stanley R. Jaffe, president, Paramount

* J. Hugh Liedke, chairman, Pennzoil Co.

* Franz J. Lutolf, former general manager, Swiss Bank Corp.

* Ronald L. Nelson, chief financial officer, Paramount

* Donald Oresman, general counsel, Paramount

* James A. Pattison, chief executive, Jim Pattison Group

* Lester Pollack, general partner, Lazard Freres

* Irwin Schloss, president, Marcus Schloss & Co.

* Samuel J. Silberman, former chairman, Consolidated Cigar

* Lawrence Small, president, Federal National Mortgage Assn.

* George Wiessman, former chairman, Philip Morris Cos.