Viacom Apparent Victor in Battle to Buy Paramount : Media: Majority of shareholders spurn the offer of rival QVC, sources say. Bidding for Hollywood’s last independent major studio exceeded $10 billion.

Viacom Inc. appeared Monday to have won the contentious five-month battle for Paramount Communications Inc., sources said, after a majority of shareholders accepted its offer to acquire the entertainment giant.

The competition between Viacom and QVC Network Inc. pitted some of America’s wealthiest media titans, as both companies jockeyed for advantage in the $10-billion-plus bidding for Paramount, owner of Hollywood’s last independent major studio.

There was no formal concession from QVC Monday as the midnight deadline in New York passed, but the home shopping network is expected to withdraw its competing tender offer this morning. Under the auction rules both bidders accepted, victory goes to the company which receives 50.1% of Paramount shares. By 10 p.m. EST, at least 70 million Paramount shares (of nearly 120 million shares outstanding) had been tendered to Viacom, sources said. Those who tendered shares to QVC will have until March 1 to switch to Viacom.

As proxy solicitators counted the shares Monday night, QVC Chairman Barry Diller was en route from Los Angeles to New York. QVC sources indicated that they expected Viacom to win.

Viacom’s tenacious 70-year-old chairman, Sumner M. Redstone, for his part, refused to claim a victory.

“Until Paramount certifies the winner, there is no winner,” he said before hosting a birthday party for his wife at New York’s tony “21” restaurant.

But Redstone added: “If we’re fortunate enough to have Paramount . . . my comment would be that it was a marriage made in heaven, dragged through hell on the way to consummation.”

Only now can Redstone make light of his marriage analogies made on Sept. 12, when he and Paramount Chairman Martin S. Davis announced a friendly merger agreement of the two companies in a deal that would have cost about $2 billion less.

Redstone sweetened his bid four times before finally proposing what appears to be the winning offer on Feb. 1. The turning point came in January, when Viacom struck a deal to merge with Blockbuster Entertainment, the video rental giant. That produced another $1.25 billion to keep Viacom in the bidding.

Viacom offered to pay $107 per share for 50.1% of Paramount, compared to $104 per share offered by QVC. Although QVC offered a more valuable package of securities for the remaining 49% of Paramount, Viacom won by offering some protection against a decline in the value of its shares in the two-year period following the merger.

“Sumner kept coming,” marveled Comcast President Brian Roberts, a QVC investor and ardent supporter of its Paramount bid. “Every time you could taste victory, he came back.”

In the end, Roberts said, Diller balked at the idea of borrowing $1 billion to provide protection for the value of QVC’s stock. Diller is at heart an operator, Roberts noted, and he did not want to burden QVC with short-term debt that would require refinancing.

Critics have said that both companies already had offered too much for Paramount, exposing the victor to years of burdensome debt payments. But Redstone maintains that the Viacom deal is not nearly as leverged as his successful buyout of Viacom in the late 1980s.

Still, criticism sharpened Monday of the Blockbuster-Viacom meger, with one institutional investor giving it at best a 50-50 chance of completion. The criticism centered on the high cost of Paramount. Others, however, maintain this is still Blockbuster’s best “exit strategy” from its dependence on video retailing.

Assuming no unexpected complications arise, Viacom’s takeover of Paramount may still take months to formally complete. Paramount Chairman Davis is expected to remain on board until power formally changes hands in the takeover.

Diller is expected to regroup before possibly setting his sights on another major target.

The entertainment executive launched his rival offer Sept. 20, with backing from Comcast and Liberty Media Corp., which is controlled by cable TV titan John C. Malone.

Redstone decried the QVC bid, particularly because it came from Diller, whom he counted as a close Hollywood friend. In private conversations, Redstone complained that Diller would just end up forcing him to spend a lot more money--which is precisely what happened.

Diller, however, was well-received on Wall Street because of his exemplary track record as a studio executive. Diller ran the Paramount studio for 10 years until he moved to Fox Inc. in 1984, where he confounded skeptics by creating a profitable fourth television network. In 1992, Diller quit Fox in order to search for a company he could control with a greater equity stake. His quest led to Pennsylvania-based home shopping QVC Network, where he formed a voting partnership with Comcast and Liberty Media.

Shortly after QVC launched its bid, Redstone retaliated with a sweeping antitrust lawsuit against Liberty Media and its much-larger affiliate, Tele-Communications Inc., which together serve nearly one out of every five cable TV households in the United States.

Federal antitrust regulators soon raised objections to TCI’s role in the QVC bid. Finally, TCI’s Malone agreed to bow out, allowing QVC to recruit new investors for the Paramount bid. Diller ultimately tapped BellSouth Corp., Cox Enterprises and Advance Publications as partners.

Once QVC abandons its quest for Paramount, BellSouth, Cox and Advance will still have the option of investing in QVC. QVC sources said Monday they expect Malone to remain a QVC investor--even though TCI has its own mergers pending with Liberty Media and Bell Atlantic Corp.

“We’ve got Malone back as a partner again,” said one gleeful QVC board member. And a second director affirmed that the Malone-Diller relationship looks solid--though both directors spoke on the condition of anonymity.

Viacom will prorate the cash among all Paramount shareholders who tender their stock. Shareholders should receive their cash in March, but Viacom cannot issue securities for the remaining 49% until its proposal clears the Securities and Exchange Commission and a proxy is mailed to shareholders. Viacom’s acquisition of Paramount could be completed about the same time Viacom completes a pending merger with Blockbuster Entertainment, company sources said.

In trading Monday, Paramount closed at $76, down 87.5 cents. Viacom A shares fell $1.625 to $34.875--the lowest the stock has closed since Nov. 5, 1992. Viacom B shares closed at $29.875, down $1.75. Viacom’s two backers also saw their stock prices decline, with Blockbuster Entertainment closing down $1 at $24.75 and Nynex down 37.5 cents at $38.

QVC rose $1.625 to $48.50. Comcast added 75 cents to $21, while BellSouth Corp.--which had pledged $2 bllion to the QVC bid--declined $1.25 to $56.

If QVC had won Paramount, BellSouth would have emerged as the largest shareholder with nearly 18.2% of the stock. There were indications Monday that some QVC investors were relieved that BellSouth would not have the option of playing such a big role. Without a Paramount victory, BellSouth has just a six-month option to purchase $500 million of QVC’s common stock.

Throughout the final week of the contest, there were reports that BellSouth and the other partners might announce a plan to buy QVC shares in the weeks ahead, which would support the value of the QVC bid. The message alternately intrigued and vexed Wall Street traders, but on Sunday QVC announced that it would not be raising its bid.

In a statement penned by Diller himself, QVC declared its eagerness to manage Paramount, and urged shareholders to consider the long-term merits of its offer. “We hope we will be doing that work and if we do, then we’ll shut up and get on with it,” the statement said.

If QVC had prevailed, Diller was expected to sell Paramount’s television stations, theme parks and perhaps other assets--which include one of the nation’s biggest book publishing operations.

Diller reportedly opposed Paramount’s plan to launch a new TV network with Chris-Craft Industries and other independent stations.

Viacom Chief Executive Frank Biondi, Redstone’s second in command, is expected to retain that positon with the new company. Viacom has been more circumspect about its broader plans, but it is less likely to sell assets. Redstone, for one, is an eager proponent of opening stores to sell Viacom’s MTV and Nickelodeon merchandise, which will be boosted considerably by Paramount products. Redstone has repeatedly cited Blockbuster’s expertise in video retailing as one of the greatest aspects of that pending merger.

However, Redstone admitted that Viacom still has not settled on a name for the Paramount-Viacom-Blockbuster entity, if both mergers are completed, although one possible name that has surfaced is Paramount Viacom International.

With its Nickelodeon franchise in children’s programming, Viacom is likely to keep Paramount’s Computer Curriculum subsidary in Silicon Valley, which produces computer-based learning systems for schools.

Throughout the battle, Diller took enormous pains to conduct an honorable battle. His greatest mistake may have been his polite overture to Paramount, when he repeatedly asked the board to consider his offer.

QVC might have gained the advantage by launching a hostile tender offer immediately, but Diller preferred to try to negotiate. Spurned, he had to take his case to the Delaware courts.

* RELATED STORIES: A11

A Mega-Merger

The merging of Paramount Communications Inc. and Viacom Inc, along with the expected addition of Blockbuster Entertainment Corp., will create the world’s fifth-largest entertainment company. With the exception of some overlapping sports holdings, the three companies’ business operations appear to be mostly compatible. Although the hurdles of regulatory approval still need to be crossed, it’s considered unlikely that the merger will present serious problems.

BROADCASTING

12 Television stations

WXTF-TV Philadelphia

WDCA-TV Washington

WTXA-TV Dallas

WTXH-TV Houston

WLFL-TV Raleigh-Durham (Fox)

KRRT-TV San Antonio (Fox)

WKBD-TV Detroit (Fox)

KMOV-TV St. Louis

WVIT-TV Hartford

WNYT-TV Albany

KSLA-TV Shreveport

WHEC-TV Rochester

14 Radio stations

KBSG-AM/FM Seattle

KNDD-FM Seattle

KSRY-FM San Francisco

KSRI-FM San Francisco

KXEZ-FM Los Angeles

KYSR-FM Los Angeles

WCPT-AM Washington, D.C.

WCXR-FM Washington, D.C.

WLIT-FM Chicago

WLTI-FM Detroit

WLTW-FM New York

WMZQ-AM/FM Washington, D.C.

NETWORKS

MTV

VH-1

Showtime

The Movie Channel

Nickelodeon

FLIX

USA Network (50%)

Comedy Central (50%)

Sci-Fi Channel (50%)

FILM

3,790-film library

Ongoing film productions at Paramount studios

RETAIL

3,593 Home Video outlets

507 music stores

PUBLISHING

Simon & Schuster

Prentice Hall

Music Publishing

Music Copyright Administration

SPORTS

New York Knicks (basketball)

New York Rangers (hockey)

Florida Panthers (hockey)

Florida Marlins (baseball)

Miami Dolphins (Football)

THEME PARKS

Six in the U.S. and Canada

Discovery Zone (21%)

Arenas - Madison Square Gardens

CABLE

1.1 million customers

MOVIE THEATERS

1,927 screens

PROGRAMMING

First Run Syndication

The Arsenio Hall Show

Entertainment Tonight

Hard Copy

The Maury Povitch Show

The Montel Williams Show

Star Trek Deep Space Nine

Star Trek, The Next Generation

The Untoucables

Network Series

Bob

Diagnosis Murder

Duckman

Frasier

Itsy Bitsy Spider

Leeza

Matlock

The Mommies

Perry Mason Movies

Sister Sister

Viper

Wings

WILSHIRE COURT PRODUCTIONS

Produces 20 made-for-TV movies for USA Network.

PREMIER ADVERTISER SALES

5th largest seller of TV ad time

THE PARAMOUNT NETWORK

28 affiliates representing 45% coverage of U.S. TV homes, to premier in January, 1995.

Sources: Bloomberg Business News; Times reoprts; company reports; wire reports; Standard & Poor’s Corp.

Researched by ADAM S. BAUMAN / Los Angeles Times

THE BIDS AT A GLANCE

Viacom-Blockbuster and QVC are both offering cash amounts for 50.1% of Paramount stock and packages of warrants and securities for the remaining stake. Because the packages of securities are tied to each bidder’s stock price, they fluctuate in value as the stock prices change. But the cash component represents a fixed value for Paramount’s shareholders.

Comparing the Offers

Viacom- Blockbuster QVC New bid Current bid Cash value per share: $107 $104 Total value*: $9.75 billion $10.69 billion

* Calculations based on Monday’s closing stock prices.

Sources: Bloomberg Business News; wire reports

THE TOP FIVE MEDIA COMPANIES

The following is a list of the world’s 5 biggest media companies, including the would-be Paramount Viacom International.The ranking is based on annual media-related revenue that were supplied by New York investment bank Veronis, Suhler & Associates. Revenue figures are in millions of dollars:

Rank Company Revenue 1) Time Warner $13,070 2) Bertelsmann $8,409 3) Sony Corp. $7,164 4) News Corp. $7,127 5) Paramount Viacom $6,130

Source: Reuter

The Takeover Battle, Chapter by Chapter

Here are the major events in the battle to acquire Paramount Communications:

SEPT. 12: Paramount and Viacom boards approve a merger agreement valued at $9.2 billion.

SEPT. 20: QVC Network Inc. kicks off a bidding war with a hostile $9.5-billion offer for Paramount.

SEPT. 28: Blockbuster Entertainment Corp. agrees to invest $300 million in Viacom’s bid.

OCT. 4: Nynex agrees to invest $1.2 billion in Viacom’s bid.

OCT. 17: QVC’s bid for Paramount is bolstered by an extra $1 billion in financing secured from Cox Enterprises Inc. and Advance Publications Inc.

OCT. 24: Viacom launches a competing two-part tender offer for Paramount valued at $9.6 billion. The new offer was quickly approved by Paramount’s board of directors.

NOV. 6: Viacom increases the total value of its bid for Paramount to $10.1 billion.

NOV. 11: BellSouth agrees to invest $1.5 billion in QVC’s bid; Liberty Media arranges to divest its interest in QVC and withdraws from its $500 million investment agreement with QVC.

NOV. 12: QVC raises its hostile tender offer to about $10.8 billion.

DEC. 9: The Delaware Supreme Court finds that Paramount failed to fulfill its duties to seek the best possible transaction for shareholders, and also invalidated a $100-million “break-up” fee payable to Viacom.

DEC. 14: Paramount’s board of directors put the company on the auction block and withdraws support for a merger with Viacom.

DEC. 20: Paramount formally accepts competing merger proposals from QVC and Viacom.

DEC. 21: QVC announces an increased bid of $11 billion for Paramount, but as QVC’s stock price slumped in midday trading, the value of the bid plunged to little more than $10.2 billion.

DEC. 22: Paramount’s board endorses the $10.2 billion takeover offer from QVC, intensifying pressure on Viacom to raise its offer or abandon its merger plans by a Jan. 7 deadline.

JAN. 7: Viacom and Blockbuster agree to merge and raise the cash portion of the Paramount bid to $105 a share.

JAN. 11: Paramount’s board unanimously throws its support behind QVC, snubbing a sweetened offer from Viacom.

JAN. 18: Viacom boosts its bid for Paramount, offering $107 a share in cash for 50.1% of Paramount shares and stock, warrants and contingent value rights for the remainder.

JAN. 21: Paramount endorses the sweetened Viacom bid and drops its backing of QVC’s offer.

FEB. 1: Deadline for final bids of Paramount. Viacom and QVC submit their bids with Viacom retaining Paramount’s support.

FEB. 14: Viacom apparently wins the bidding with more than the required 50.1% of the shares.

Sources: Bloomberg Business News, Times reports

Researched by ADAM S. BAUMAN / Los Angeles Times