QVC Objects to Paramount Auction Rules

QVC Network Inc. on Wednesday lodged lengthy objections to auction rules adopted by Paramount Communications Inc., contending that the entertainment company’s board could use the rules to favor rival bidder Viacom Inc.

Because Paramount’s auction rules reportedly were developed largely from suggestions made earlier by QVC, the shopping network’s filing of objections appear to be a legal maneuver to guarantee a fair action and solidify its advantage in the takeover battle. QVC gained its edge by winning two decisions in the Delaware courts and by making a bid higher than Viacom’s.

Viacom was privately critical of the rules as well, but it has not yet publicly commented.

QVC contended that the Paramount board gave itself the ability to change the bidding deadline and other procedures and could still use a “poison pill” to thwart a possible tender offer that QVC might need to top offers from Viacom.

A source close to Paramount said the poison pill’s existence could serve as a useful tool to encourage all bidders to participate within the auction rules. The poison pill is a device that would enable Paramount to flood the market with new shares, making an unwanted takeover prohibitively expensive.

In a news release, Paramount insisted that its board believes the rules “will provide a level playing field for all bidders and ultimately will permit the Paramount shareholders to make their own choice if all the bidders cooperate.”

However, it said it will consider QVC’s objections.

Paramount was forced to revamp the procedures for selling itself after the Delaware Supreme Court ruled last week that the board of the publishing and entertainment conglomerate had unfairly brushed aside QVC’s bid in favor of a lower offer from Viacom.

Both QVC and Viacom have outstanding cash tender offers for 51% of Paramount’s stock, but Paramount’s board voted Monday to conduct an auction.

Although Paramount asked for the best and final bids to be submitted by Monday, it looks as though the prospective suitors may prolong the bidding.

“Assuming the bidders comply with these procedures, there’s nothing which prohibits a bidder from raising its bid” after Monday, said one source close to Paramount who asked not to be identified.

However, QVC attorneys were not sanguine on that point, protesting that the language of the rules suggests that if Viacom makes the highest bid Monday, Paramount’s board might declare the auction over and use its poison pill to thwart any subsequent higher tender offer by QVC.