Is it point, set and match? Not yet. But Diller’s startling gambit clearly pressures Viacom to raise its bid–and forces Paramount to consider his more seriously. It also injects a new sense of urgency into the competition. Many of the nation’s biggest communications and entertainment companies have taken sides in the fray, and more might yet come in. Liberty Media, Comcast Corp. and Cox Enterprises have lined up behind Diller’s QVC Network Inc., the home-shopping channel; Viacom is backed by Blockbuster Entertainment and Nynex. All anticipate the coming of the Information Superhighway and are stampeding for the on-ramps. Paramount, with holdings in everything from the New York Knicks to hit flicks like “The Firm,” is a ticket to ride.
What’s Diller offering? He will pay $80 in cash for 51 percent of Paramount’s shares; the remaining 49 percent would be swapped for shares in QVC, with a current value of $79.10. Shareholders who tender now get the cash: latecomers get the stock. It’s a gamble either way. QVC stock might sink, hurting those who wait; Paramount’s might rise above last week’s closing $77, hurting those who don’t. Gyrating stock prices are only one wild card in this highstakes game. Here’s what to Watch for next:
Paramount’s board has formally agreed to merge with Viacom. If it backs out, Redstone gets a $100 million penalty fee. He could also gain another couple of hundred million dollars by exercising Paramount stock options on the deal. Nice money. Will he take it? “Sumner wants Paramount,” says one Viacom director. “He won’t walk away.”
To stay in the game, Redstone must raise his bid. By how much? “It has to be pretty damn close to Diller’s,” growls a source on Team Paramount. For Redstone, the danger is that Diller will counter his counteroffer.
“Our patience is at an end,” Diller warned last week, accusing Paramount of “demeaning” itself by holding out on him. But not everyone took his offer seriously. It’s less than $3 higher than Paramount’s current stock price, and that margin could quickly erode. Diller is “grandstanding,” said one Paramount adviser, in order to scare Paramount’s board. Redstone has his own shtik: Diller’s just a “home shopper,” he often claims. Paramount Viacom offers better future value; QVC’s stock will fall as newcomers push into the business.
Timing now determines the pace of play. Diller’s offer formally kicks in Wednesday: Paramount must respond within 10 business days. “Diller has put Paramount under the gun,” says New York stock trader Guy Wyser-Pratte. The longer Redstone waits, the harder it will be to deny Diller.
The umps may ultimately decide this game. Viacom has already asked federal trustbusters to enjoin QVC and its allies from acquiring Paramount, on the ground that it would create a communications “monopoly.” Late last week QVC countersued, asking Delaware courts to force Paramount to treat its takeover offer fairly. It seeks to undo Viacom’s so-called lock-up guarantees–the few hundred million Redstone would receive if the merger founders–that hamper QVC’s bid. Meanwhile, regulators approved Viacom’s merger proposal; QVC, whose tangled alliances could pose ticklish antitrust questions, faces tougher going.
Rumors swirled last week that other players may emerge. “While Diller and Redstone fight it out, a third party might swoop in,” says Wyser-Pratte. Among the rumored spoilers: Bell South and Southwestern Bell.
As befits a Big Game, takeover bookies are having a field day. Wall Street “arbs” are furiously boosting this or that side and buying and selling the contestants’ stock. Until last week, many gave Redstone the edge, if only because of the Paramount board’s intransigence. Now the advantage may be Diller’s. But obviously, that could change. “This game will go on for months,” says the Viacom director. That would suit Redstone. Despite legs that once burned to the bone in a fire, he plays tennis with such ferocity, friends say, that he sometimes calls “in” balls “out.” But then, who said tennis was a gentlemen’s sport, anyway?
