COMPANY TOWN : Eyes on Viacom as Paramount War Revives
After a holiday cease-fire in the marathon battle for Paramount Communications Inc., analysts and others look for Viacom Inc. to raise the stakes or cry “uncle” as early as Wednesday.
Some insiders are betting that Viacom Chairman Sumner Redstone will pull out of the competition with QVC Network Inc. before bidding up a price that’s already reached “never-never land,” as he recently put it. But sources say the Viacom chairman still has some aces in the hole.
One intriguing scenario has Redstone financing a higher bid with bank loans instead of outside investments, because the interest would be deductible. Redstone’s main bankers--which include Citibank, Morgan Guaranty and Bank of New York--have already extended enough credit for him to best QVC’s offer if he chooses to take that route.
Banking sources say Redstone might be able to tap as much as $1 billion to $2 billion from the lenders, since he didn’t take all of the credit they initially extended. But the same sources say it’s unlikely he will borrow much more, because the banks would exact stiff guarantees, including shorter periods to repay the money and various restrictive covenants.
The value of the Paramount bidding has reached as much as $10.2 billion in the last few weeks. Lisbeth R. Barron, an entertainment analyst at S.G. Warburg & Co. in New York, says that, based on current stock prices, Redstone needs about $600 million in cash to take back the lead from QVC, plus a way of guaranteeing the value of the stock investors would receive. But Barron is also skeptical that Redstone would be able to raise the full amount through bank financing.
She estimates that the Viacom chairman would be able to borrow only $200 million to $300 million because of public debt agreements with borrowers and internal fears that the company would become too highly leveraged.
While the bank option would guarantee Redstone full management control of Paramount, sources say he remains in discussions with his two investors--Blockbuster Entertainment and Nynex--about increasing their stakes in the deal.
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As of Monday, there were no signs of an agreement. One reason: All sides were said to be regrouping following holiday vacations.
Based on the current pace of the talks, some sources speculate that Redstone will take his decision down to the wire--meaning Friday’s deadline.
Paramount gained 50 cents a share on Monday, closing at $78.25.
Viacom Class A shares eased 12.5 cents to $48.75, and Viacom Class B lost 87.5 cents to $44. QVC added 25 cents to $39.50.
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Top Blockbuster executives were scheduled late Monday to check into New York’s Peninsula Hotel for what are expected to be intense strategy sessions with Viacom over the next couple of days.
The hotel has become the company’s residence of choice in the Big Apple, and for good reason.
Back in September, executives were unexpectedly kicked out of the St. Regis Hotel because the hotel was booked and they hadn’t made arrangements to stay another night. The St. Regis ended up sending them over to the Peninsula.
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If Viacom does forgo making a higher bid, Redstone will have a few brash statements to answer for. One in particular is his Nostradamus-like declaration that it would take a “nuclear attack” to prevent Viacom from acquiring Paramount.
Then there was another Redstone declaration of confidence in September in which he said, “Short of a bullet going through me, this merger’s going to take place.”
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Paramount is also the focus of an article in February’s Vanity Fair magazine, in which contributing editor Bryan Burrough reports that the company nearly merged with NBC before the current battle.
Burrough quotes Paramount Chairman Martin Davis as saying he came razor-close to acquiring 51% of NBC in 1992, in a deal quietly negotiated with General Electric Chairman Jack Welch. The agreement reportedly fell apart because of regulatory blockades. “This was real. We had a deal. It blew apart at the 11th hour,” Davis said in the article.
Davis also told Burrough that Tele-Communications Inc. Chief Executive John Malone leaked details of QVC’s planned bid to him as part of his independent effort to strike a deal with Paramount. According to the article, Malone at one time hoped to pair Paramount with TCI, the TCI-owned Liberty Media or Turner Broadcasting, which is also partly owned by TCI.
While Burrough reports that Paramount courted, or was courted by, such companies as Thorn EMI, Bertelsmann, Sony, CBS, ABC, McGraw-Hill, Gannett, AT&T; and even Time Warner, it’s Davis’ frank and insulting appraisals of certain industry colleagues that are often most memorable.
On Malone: “The guy is a genius--but then, so was Al Capone. He’s the smartest guy you’ll ever meet. He’s brilliant. But he stands for nothing, believes in nothing and has contempt for anyone that walks and talks.”
On Sony President Norio Ogha: “I know (Ogha) speaks English. There’s nothing more irritating than talking to a man who knows exactly what you’re saying but just gives you this look.”
On Ted Turner: “As I got to know him, I learned to make sure I got him in the right mood swing, or he’ll be crazy. He’s on lithium, you know. When we got to talking, he’d get so excited I thought he’d have an unregulated orgasm.”
