The grueling, four-month fight for control of Paramount Communications enters its final round this week.
Under rules established by Paramount, rival bidders Viacom and QVC Network must make their last, best offers for the entertainment giant by 5 p.m. Tuesday, New York time.
But QVC, a West Chester, Pa.-based home shopping service, is almost certain to improve its offer today - even if that just sets the stage for another, final bid Tuesday, analysts say.
QVC's current offer is worth $ 10 billion, or about $ 84.50 a share - $ 46.09 a share cash, plus about $ 38.40 a share in QVC securities. Viacom's offer is worth $ 9.7 billion, or about $ 82.25 a share - $ 53.61 a share cash, plus about $ 28.64 a share in Viacom securities.
Paramount's board has endorsed Viacom's bid - and most Wall Street traders prefer it - even though it appears to be worth less than QVC's offer. They like it because it contains more cash, plus protections against a drop in Viacom stock. QVC's offer contains no protection against a drop in QVC shares.
So Viacom's offer is more stable and less vulnerable than QVC's to the daily ups and downs of the stock market. That is important because the winner of the takeover battle is likely to see its stock drop sharply. Many analysts and traders are convinced bidding already has gone too high and that the new Paramount owner will be a loser in the long run.
The current offers expire at midnight tonight. Paramount shareholders can tender - commit to sell - their shares to the bidder they think has made the best offer; the board's endorsement was non-binding. Whichever bidder gets a majority of shares wins. If neither gets a majority, neither wins, and both get a chance to make their final bids Tuesday.
But QVC is unlikely to run the risk that Viacom would get a majority of shares today and win Paramount. So it is likely to sweeten its bid today - a move that would keep the contest going and ensure it gets a chance to make a final bid Tuesday. "In order for (QVC chief Barry) Diller to be able to do something Tuesday, he has to do something by Monday," says Lisbeth Barron, analyst at S.G. Warburg & Co.
Most analysts dismiss as tactical maneuvering arguments from QVC advisers that their bid is superior and that they don't need to sweeten their offer today.
Under one rumored scenario - dismissed as unlikely by some in the QVC camp - QVC today would:
- Add some protections against a decline in QVC's stock price.
- Raise the cash portion of its offer by about $ 8 a share.
- Eliminate from the securities portion of its offer 0.32 shares of QVC preferred stock for each Paramount share. The preferred stock part of the offer is now worth about $ 7 a share; the proposed $ 8 increase in the cash part of the offer would more than make up for the loss of the preferred.
Both bidders seem reluctant to raise their bids significantly. When it made its latest offer Jan. 18, Viacom suggested it wouldn't go higher. And QVC's Diller also has said he had made his last bid - though he has given himself some leeway to tinker. Any new bids "may not be substantially higher, but we'll see some new terms or new structures from both," Barron says.
Any new offers made Tuesday would stay open for 10 business days, or until Feb. 14. Whichever bidder has a majority of shares when the offers expire that day wins. If neither has a majority, the battle for Paramount, already drawing comical comparisons to the 100 Years' War, could rage on.
The bidding war has taken a big toll. Viacom Class B stock has fallen 39% from Sept. 10, the last trading day before the MTV parent announced plans to acquire Paramount. And QVC shares have dropped 26% since it made its hostile offer for Paramount Sept. 20.
Also hurting: Paramount itself. The battle has distracted the company's top executives, making it tough for them to run the company day to day.
Kidder, Peabody analyst Alan Gould recently lowered his estimate for Paramount's fiscal 1994 and 1995 earnings.
"The longer the . . . war lasts, the larger the impact it has on the operations," Gould said in a report.
