Viacom, QVC Offer Final Bids for Paramount

Viacom Inc. and QVC Network submitted their final bids in the prolonged battle for Paramount Communications on Tuesday, but the offers were so close that neither emerged as the clear winner.

Based on closing market prices, QVC’s cash-and-stock proposal was worth nearly $10.6 billion compared to $10.2 billion offered by Viacom, but Viacom has offered protection to Paramount shareholders that QVC eschewed. That protection--coupled with Viacom’s higher cash component and its pending merger with Blockbuster Entertainment--may give Viacom the edge, Wall Street sources said.

Still, several top shareholders in Paramount--which owns the Hollywood movie studio behind “The Firm” and “Entertainment Tonight,” Simon & Schuster publishers and the New York Knicks basketball team--agreed that the race is too close to call.

Some Wall Street executives said it may not be decided until the Feb. 14 deadline for shareholders to pledge their stock to Viacom or QVC. And even then it is possible that neither bidder in the $10-billion battle will walk away with 50.1% of the shares required under Paramount’s auction rules.

“What scares me is, there’s no substantially better bid. I can envision this thing with nobody getting 50.1%,” one institutional investor said somberly.

Belatedly, Paramount tried Tuesday to head off that problem by proposing to QVC and Viacom that a victor will be declared if it wins 40% of the Paramount shares and has a 2% lead or more over the other suitor, sources said. But by evening, QVC had not agreed to the new terms and Wall Street executives said a company might balk if it fears it is losing.

The Paramount board is expected to meet late this week in New York to consider the new bids before making its recommendation to its shareholders.

To the dismay of many Wall Street speculators, Barry Diller, chairman of the QVC home shopping channel, kept his vow not to raise his offer above the bid submitted five weeks ago when the Paramount board opened its auction.

QVC also stuck to its long-held position that it does not need to offer Paramount shareholders any protection if the price of QVC stock declines in the future.

But QVC did reconfigure its bid by substituting $750 million in cash for securities it offered in its earlier proposal. To accomplish this, QVC said it would use $250 million in bank borrowings and another $500 million from the sale of QVC shares to BellSouth Corp.

By shuffling its bid, QVC now is offering $104 per share for 50.1% of Paramount, compared to Viacom’s offer to pay $107 per share. But Wall Street has valued QVC’s package of securities for the remaining 49% at a greater value than Viacom’s securities, leading to the fluctuating--and confusing--”blended” values assigned to the two bids each day.

In its new bid, Viacom--best known for its MTV and Showtime cable networks--said it was improving a provision designed to protect shareholders against a decline in its value after the deal. Viacom also increased the value of its offer slightly by improving the terms of the securities it is offering Paramount shareholders for the remaining 49.9% of their shares.

If QVC wins Paramount, regional phone company BellSouth will wind up as the largest shareholder with a $2-billion investment and nearly 18.2% of the stock. BellSouth and QVC’s other partners--Comcast Corp., Cox Enterprises and Advance Publications--have renegotiated an earlier agreement to buy QVC shares, which allows them to buy the stock at $52 per share, instead of $60.

But Diller insisted that control of QVC has not shifted, noting that BellSouth already had the option of acquiring up to 35% of QVC’s stock under the prior deal.

As a result of its latest commitment, BellSouth will not gain any additional seats on the QVC board and it will continue to operate as just one of the three votes in the voting trust agreement negotiated by the telephone company with Diller and Comcast. BellSouth’s $2-billion pledge is contingent on winning Paramount; if QVC loses, BellSouth has a six-month option to purchase $500 million of QVC’s common stock.

Diller said QVC’s directors deliberated all day before settling on the plan submitted just before Paramount’s 5 p.m. deadline. “We made it just under the wire,” the QVC chairman said, describing a global telephone hookup that included directors who were as far away as Switzerland. One key director, Comcast President Brian L. Roberts, participated from a heliport in Venezuela.

Diller, who turns 52 today, said QVC will make no effort to change its bid again, although he did not rule out the possibility that BellSouth or some other supporter will buy QVC shares in the open market to support the value of his company’s shares.

Dennis McAlpine, a co-director of research for Josepthal Lyon & Ross, said QVC’s decision to raise the cash portion of its bid to within $3 of what Viacom offered means “cash is not a major factor.”

“Now it’s a matter of wading through the stock and putting a value on that. Basically, you have to sit back and wait to see what happens to the stock. This is not a game for amateurs anymore,” he said.

The fight started Sept. 12 when Paramount agreed to a friendly merger with Viacom. QVC made a counteroffer for Paramount eight days later.