Armed with a fresh cash infusion from BellSouth Corp., QVC Network Inc. increased its hostile bid for Paramount Communications Inc. yesterday to $90 a share in cash and stock based on Thursday's closing price.
That gives QVC the edge in its vicious bidding war with Viacom Inc., Paramount's hand-picked merger partner.
QVC has raised the cash component of its bid to $5.5 billion, a 15 percent increase from the previous offer of $4.8 billion. Viacom has promised investors $5.1 billion in cash.
Right now, QVC is offering $90 a share in cash for 51 percent of Paramount's stock, and Viacom is offering $85 a share for the same stake.
Investors pay close attention to the cash component of any offer because they cannot be sure how the stock will perform once a merger is completed. Both QVC's and Viacom's stock have been somewhat volatile. Between Thursday, when the terms were set, and yesterday's close, the total per-share value of the QVC bid dropped from $90 to $88.51, because QVC's stock fell $2.125, to close at $49.625.
Based on the offer announced yesterday, Paramount shareholders would get the equivalent of $45.90 in cash and $34.77 in stock, or $88.51. Viacom's offer now stands at $43.34 in cash and the balance in stock, for a total of $81.14.
The QVC offer values Paramount at $10.6 billion; Viacom's offer values it at $9.7 billion.
The move hardly surprised Wall Street, which had been eagerly waiting for QVC to lift its bid all day. Investors pushed Paramount's stock up 50 cents, to close at $83, anticipating QVC's sweetened offer.
Some analysts had expected QVC to wait until Monday, the day before it is scheduled to challenge in Delaware Chancery Court Paramount's agreement to be acquired by Viacom. QVC is contending that anti-take over and lockup provisions, which give Viacom nearly $600 million if it loses the bidding war, are unfair.
QVC at least had to match Viacom's offer to increase its chances in court, but many thought QVC Chairman Barry Diller would wait until the last minute to block Viacom Chairman Sumner Redstone from coming back with a higher offer before the hearing.
As it stands now, QVC's offer would close on Nov. 26, and Viacom's bid would close on Nov. 22.
Although one arbitrageur said yesterday that he viewed the QVC offer as a better one, he said he would tender his shares to Viacom for the moment. QVC's bid is predicated on the Delaware Chancery Court's removing both Paramount's prohibitively expensive "poison pill" and lockup provisions.
The poison pill would flood the market with new Paramount stock in the face of a hostile offer; Paramount also gave Viacom a $100 million consolation prize for making the bid and the right to buy 24 million new shares at a fixed price that would give, at yesterday's prices, an additional profit of about $480 million.
This arbitrageur said he thought it was unlikely the court would eliminate the prizes Viacom had been promised, thereby making the Viacom bid a safer one.
In restructuring its bid, QVC took a page from Viacom's notebook. As part of its deal, QVC has promised Paramount shareholders 1.43 shares of QVC common stock for each share of Paramount they own, as well as a new equity: a 0.32 percent share of newly created convertible preferred stock that resembles an equity Viacom has in its current offer.
The preferred stock has a 5 percent dividend and a conversion ratio into QVC's that is almost identical to Viacom's. Convertible preferred stock is considered less volatile than common stock because it has a fixed dividend payment.
The convertible preferred stock is valued at $50 a share. It would be convertible to QVC common stock at $70.34 and redeemable for cash at QVC's option five years or more after the completion of the Paramount merger, at prices beginning at $52.50 a share and declining to $50 after 10 years.
The preferred stock could be exchanged for debentures at QVC's option three years or more after the merger.