Paramount Recommends Merger With QVC : Entertainment: The studio board’s advice to shareholders is non-binding. Viacom still has time to increase its offer.

Paramount Communications Inc. on Wednesday recommended to its shareholders a merger with QVC Network Inc. instead of its once-favored suitor, Viacom Inc., after a court-ordered reassessment of the two bids.

While Viacom could still return with a higher offer, company Chairman Sumner M. Redstone on Wednesday said the price had already reached “Never Never Land.” Redstone would not comment on speculation that the company was in financing discussions about boosting its bid.

The Paramount board’s action, which is non-binding, clears the way for shareholders to choose the winner by tendering their shares in January to either QVC or Viacom, since both companies have made cash tender offers for 51% of the company.

QVC has consistently offered more cash to shareholders, and raised its offer to $92 per share in a bid submitted Monday. Viacom never divulged its bid but is believed to have left it at $85 per share. The overall value of their offers has fluctuated greatly, however, since each has offered to use its own securities to acquire the remaining 49%.

Paramount’s reversal was a sweet victory for QVC Chairman Barry Diller, who ran the Paramount studio for 10 years but could not get the directors to consider his bid seriously until the Delaware Supreme Court accepted his argument for a “level playing field.”

On Wednesday, however, Diller was accepting congratulatory calls “provisionally,” as he put it, since Viacom may yet increase its bid.

In a telephone interview, Redstone said his company has not decided its next move.

“We have the wherewithal to do anything we want to do, but we have not made a decision,” the Viacom chairman said. “On one hand, we think the price is extremely high--indeed, in Never Never Land. On the other hand, if we decide to go for the company, we believe (that) with our management team and our assets, we could probably make it work.”

Redstone refused to confirm reports that Viacom has been immersed in talks with Blockbuster Entertainment Corp. about investing more cash, or possibly merging with Viacom.

But members of the Viacom camp appeared to be dispersing for a holiday break, and Blockbuster’s top two executives checked out of their Manhattan hotel on Wednesday.

On another front, the 70-year-old Redstone spent much of Wednesday dealing with a Wall Street Journal report that his wife filed--then withdrew--a divorce action in recent weeks.

The Redstones’ private attorney issued a statement saying that family trusts and other legal arrangements would prevent a loss of control of the Viacom stock in the event of a “hypothetical divorce.”

“In any event, there is no divorce action, and repeated references to these matters amount to no more than malicious harming of innocent people,” said George S. Abrams, identified as the personal attorney for both Phyllis and Sumner Redstone.

Under the rules of the Paramount auction, Viacom and QVC will be expected to allow their tender offers to expire on the same date. With the increase of its bid to $92, up from $90 a share, QVC’s tender offer is set to expire Jan. 7.

If Viacom changes its tender offer, however, the battle for Paramount would be prolonged, because securities law requires the tender offer to remain open for 10 days.

Viacom “could still get back in the game eight days from now and announce that they’re going to increase the cash,” said one money manager. “If that happens, and their stock holds up better than QVC’s,” Viacom could prevail, he said. “It’s not over until the tender closes.”

The new agreement with QVC “does not prohibit any new bids by a third party,” Paramount Chairman Martin S. Davis noted in a press statement.

In trading Wednesday, Paramount closed at $79.63, down 63 cents a share. QVC lost $1.75 a share, closing at $40.25. Viacom A shares gained $1.13, to $51 a share. Viacom B shares closed at $46 a share, down 88 cents.