Viacom captures Paramount

February 16, 1994|By Ian Johnson | Ian Johnson,New York Bureau of The Sun

NEW YORK -- One of Wall Street's longest takeover battles ended yesterday in a crescendo of anger, disbelief and disappointment. And that was on the winning side.

Officially, Viacom Inc. sounded a triumphant note after being declared the official winner of the $10 billion Paramount Communications Inc. sweepstakes. Paramount shareholders voted overwhelmingly to sell their shares to Viacom, which had offered a combination of cash and stocks worth $9.8 billion.

The loser was QVC Inc., which had tried over the past five months to horn in on the arranged marriage between Viacom and Paramount. Despite lining up a group of deep-pocketed partners to make a better bid, QVC had to concede defeat yesterday.

"Our current position demands brevity: 'They won. We lost. Next,' " QVC said in a statement.

Viacom's victory puts the Massachusetts-based owner of MTV and Nickelodeon in charge of one of Hollywood's biggest movie studios. Besides making movies like "Addams Family Values," Paramount runs amusement parks, owns three publishing houses and is assembling a small TV network.

To finance the huge purchase, Viacom decided to merge last month with Blockbuster Entertainment Corp., the nation's largest owner of home-video stores and third-largest operator of music stores.

"We remain . . . unwavering in our conviction that the combination of Viacom, Paramount and Blockbuster will create a global media powerhouse of unparalleled proportions in the entertainment industry," Viacom Chairman Sumner M. Redstone said.

Almost no one disputes that the new media conglomerate will be gargantuan -- but many question Mr. Redstone's decision to pay so much for Paramount. If Viacom were to simply sell off Paramount piece by piece, it would get $8 billion, Wall Street analysts estimate. By paying 25 percent more to own it, Viacom may have dug itself in a deep hole.

"The short and the sweet of it is that the winner is the loser and the loser is the winner. Paramount was simply not worth the money that Viacom paid for it," said Alan Snyder, a San Francisco-based money manager who has been following the takeover battle.

Besides the purchase price of $10 billion, the deal has also cost shareholders on both sides $10 billion in lost value of the stocks they held. All the major companies involved have seen their share price fall, although QVC's has been on the rebound, especially as it became apparent it would lose the battle.

Yesterday, Viacom's Class B shares, which form part of the bid, fell $1.875, to close at $28. QVC shares rose $1.75, to $50.25.

Skeptics see the deal as a triumph of ego and flawed vision over sound financial considerations.

With the blessing of Paramount Chairman Martin S. Davis, Mr. Redstone planned a friendly takeover last September of the ailing movie studio, which has been losing money.

Calling the acquisition an "act of destiny," Mr. Redstone offered $8.2 billion for Paramount.

Eight days later, however, QVC's hard-charging chairman, Barry Diller, showed up with a $9.5 billion offer and the industry's respect as a turnaround artist who might be better able to rescue Paramount. Even though QVC consists just of Home Shopping Network, the prospects of some "Diller sizzle" gave the hostile offer instant credibility.

The two sides battled over the following months, adding muscular partners to push their offers higher. Mr. Diller found allies in BellSouth Corp., which invested $1.5 billion in QVC, while Mr. Redstone talked Nynex Corp. into investing $1.2 billion and Blockbuster to pony up $600 million for the right to own part of the new Viacom-Paramount.

Mr. Diller seemed to have Paramount in hand late last year when two courts ruled that Paramount's board of directors had failed to give QVC's offer a fair hearing, even though it was higher. Chastened, the board met Dec. 22 and unanimously gave Mr. Diller the nod.

Early last month, however, Mr. Redstone made what proved to be his best move: He convinced Blockbuster to agree to a full-fledged merger worth $8.4 billion. That immediately gave Viacom deeper pockets and stronger cash-flow to pay off the debts it would incur in buying Paramount. Paramount's board swung around and backed Viacom again.

The final bids were made Feb. 1 and Paramount shareholders given until Monday to decide who would get their vote. By Monday evening it was becoming clear that they had voted overwhelmingly -- 74.6 percent -- in favor of Viacom.

Viacom's winning edge: Mr. Redstone's guarantee that if the stock he was offering in partial payment for Paramount does not rise to a certain level in two years, he will pay the difference.

Not only could this promise end up costing Viacom $1 billion, but many analysts wonder if Mr. Redstone overreached when he made the deal with Blockbuster.

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