Wall Street signaled Wednesday that it favors Viacom's offer for Paramount Communications over a rival bid by QVC Network - at least for now.
Viacom class B shares sank 5/8 to $ 33 1/2. QVC stock climbed 2 to $ 46 3/4. Whenever one of the bidders takes the lead in the takeover battle, it always gets clobbered in the stock market because of fears it will be overpaying for the entertainment giant.
Tuesday, Viacom and QVC were supposed to make their last, best bids in the nearly five-month contest for Paramount. QVC's offer (valued at about $ 87 a share, or $ 10.3 billion, in cash and QVC securities at Wednesday's stock price) currently is worth more than Viacom's (about $ 83 a share, or $ 9.8 billion, in cash and Viacom securities). But many traders and analysts favor Viacom's bid because it contains more cash, plus protections against swings in Viacom stock; QVC's offer includes no such protections.
Still, neither bidder dealt the other a knockout blow. And investors could change their minds about the bids before the Feb. 14 deadline to decide between them. "This is just a knee-jerk reaction," says analyst Lisbeth Barron of S.G. Warburg & Co. "In the next week, it's going to be very important to watch the trading."
Paramount's board meets this week - reportedly Friday - to review the bids. But its endorsement is non-binding; Paramount shareholders get to choose. Some analysts fear that neither bidder will get the 50.1% of shares required to win the battle by Feb. 14. That could set off yet another round of bidding.
Wednesday's stock movements underscore one of the weirdest things about the Paramount battle: the so-called winner's paradox. As the likely winner's stock falls, so does the value of its cash-and-securities bid. And that makes its bid look less attractive.
Also Wednesday, Paramount said it would report a loss of $ 35 million to $ 40 million for the quarter that ended Jan. 31. It blamed the loss, in part, on the poor performance of the TV show Major Dad on the USA Network and on the film Addams Family Values.
The announcement added to fears that the winner in the battle for Paramount will be the loser in the long run.
