Troubling Time for the Arbs (Poor Babies!) : Speculators: The Paramount affair has been nothing like the lucrative deals of the ‘80s.

It was late Friday afternoon. A fierce winter storm was closing in on Manhattan, and Viacom Inc. had just ended weeks of speculation by making a new bid for Paramount Communications Inc.

As the news flashed across the Dow Jones ticker, the speculators of Wall Street at first were ecstatic: $105 a share! A merger with Blockbuster! “Wow!” panted one arbitrager who asked not to be identified. “Awesome! Unbelievable!”

Soon enough, though, it became clear that Viacom’s latest bid wasn’t so strong after all. The cash amount outdistanced QVC’s offer, but the accompanying passel of stock watered it down to a smaller sum per share.

Ecstasy turned to irritation, then to anger. This Paramount deal was really becoming a dog. Too much time and trouble. Too much wimpy bidding.

“An insult,” snapped another arbitrager--especially since it had kept him from beating the storm home.

Some people would sooner sympathize with Joey Buttafuoco than with stock arbitragers, or “arbs,” whose profession was made infamous a decade ago with the conviction of swindler Ivan Boesky.

While conventional arbitrage is simply a technique for taking advantage of price anomalies in the stock market, so-called risk arbitrage--popularized in the 1980s and exercised energetically amid the Paramount deal-making--is short-term speculation, plain and simple.

Arbs don’t care about long-term value or sound management or--that dreaded buzzword--synergy. They have a simple agenda: get more money now. Dozens of arbitrage funds and other short-term investors are believed to control about a fourth of Paramount shares, so they are an important constituency for would-be buyers Viacom and QVC.

It was in part to woo this constituency that Friday’s Viacom/Blockbuster bid included a much higher cash component than Viacom’s earlier offers, but less stock.

*

Still, this deal has not worked out as the arbs had hoped.

Early on, it looked golden: Viacom and Paramount announced a merger, and then QVC came forward with a hostile bid of a much higher value. Even now, anyone who bought Paramount shares right after the original merger announcement--or who listened to the rumors and bought before--is sitting pretty.

Things started getting ugly, though, as Viacom and QVC launched competing tender offers with different expiration dates and hard-to-value stock components. The bidders’ stock began to fall, as investors worried about a Paramount acquisition’s impact on earnings. That pushed down the price of the offers. The arbitrage game grew complicated as traders hedged their positions in all three stocks.

Then the battle moved to the courtroom, with QVC challenging the Paramount board’s attempt to stick by Viacom.

If QVC won in court, it seemed, a full-fledged auction would drive Paramount’s price much higher. And QVC, indeed, got its victory--in a decision, handed down the night before Thanksgiving, that created turmoil in the markets once again. A couple of weeks later, an appellate court upheld the decision.

But QVC upped its offer only a tiny bit. The bidding war was fizzling.

“It started out as a real fireplug, but it hasn’t finished that way,” said Mathew Greco, editor of the newsletter Mergers and Corporate Policy.

All through the holidays, the arbs waited impatiently for Viacom to respond. There was no hard information--only guesswork masquerading as informed opinion. As the Jan. 7 deadline approached, it seemed Viacom might walk away from the deal.

Finally, on Friday, Viacom announced its merger with Blockbuster, along with a new offer for Paramount--one that turned out to be lower than the QVC bid on the table.

“I cannot remember a situation where two guys were so hungry for a company and ended up playing this kind of chicken,” said Curtis Schenker, an arbitrager with Scoggin Capital Management in New York, with more than a hint of frustration.

Ah, for the glory days! In ‘80s deals, such as RJR Nabisco and Revlon Inc., short-term traders made a killing.

Many arbs are still hoping Viacom will come back with a higher offer this week, to reinvigorate the all-too-tepid bidding war, but some are ready to get out: about 22% of Paramount shareholders, including an unknown number of arbs, already have tendered their shares to QVC.