At least some of the smoke should clear today from the ongoing battle for Paramount Communications.
The Delaware Chancery Court is expected to hand down its decision on QVC’s petition that Paramount be forced to throw out its “poison pill” provision and drop $ 600 million of lockup agreements with Viacom, whose $ 85-a-share, $ 9.3 billion bid is due to expire at midnight tonight.
While any clear loser in the case can be expected to appeal the decision to the Delaware Supreme Court, the ruling could prove a signpost for which suitor walks off with Par and who is left stand-ing at the altar.
While QVC announced Saturday that it had obtained firm financing commitments for its $ 90-a-share, $ 10.6 billion offer, its bid remains contingent on the court removing the anti-takeover provisions. It’s up for conjecture whether QVC topper Barry Diller — along with his deep-pocketed partner BellSouth — will really walk away from the deal if unsuccessful in court, given that the lockups represent a penalty of about $ 5 a share.
Most on Wall Street said an unfavorable decision would force QVC to again sweeten its bid if it really wants to stay in the race. “QVC’s offer needs to be about $ 3 to $ 5 better on face,” said analyst Edward Hatch of UBS Securities. “But with the lockups in place, a victory would cost QVC $ 8-$ 10 per share more than what Viacom was offering.” For that reason, Hatch said, “It appears difficult to see QVC overcoming a loss in court, given Viacom’s readiness to continue to pay up.”
Still, with the backing of BellSouth, which has already committed $ 1.5 billion to QVC’s bid, QVC could come up with more money. That is unless the question of control again becomes an issue within QVC itself.
BellSouth is already poised to become the single largest shareholder in a merged Par/QVC and will control three board seats. “It could be dicey,” said a source close to the company. “Diller’s already worked for Martin Davis at Paramount and Rupert Murdoch at Fox; he certainly doesn’t want to find himself under BellSouth’s thumb.”
While there was rampant speculation late last week that QVC might increase its bid before the court decision is handed down, sources close to the company told Daily Variety that it will wait for the ruling before it makes any move.
But some on Wall Street were advising shareholders late last week to tender to Viacom, rather than wait for today’s outcome.
“The bottom line is there is little risk in tendering to Viacom,” Paine Webber special situations analyst Wolfgang Armbruster wrote in a memo Nov. 19. “If (Viacom’s) offer is extended, stockholders will have the choice of switching to QVC. But, should the (Viacom) offer conclude Monday night, clients who did not tender would have suffered a large loss in receiving the inferior ‘back end’ value.”
Under terms of the Viacom bid, those not receiving $ 85 a share cash would receive a “back end” package of Viacom shares valued at about $ 69.50 per Paramount share based on the Nov. 19 close.
Regardless of the court’s decision, legal sources said it is unlikely Vice Chancellor Jack Jacobs (who is ruling on the case) would allow Viacom’s tender to close until an appeal is heard. Further, if Jacobs does, in fact, create “the level playing field” QVC has requested, he could extend the closing date of Viacom’s offer so that shareholders would have time to consider QVC’s rival offer, which is now set to expire Nov. 29.
Betting on QVC
Wall Street is giving QVC better-than-even odds of receiving some relief from the court. According to sources close to Paramount, Jacobs on Friday requested documents related to Par’s board of directors meeting held Nov. 15. At that meeting, the board unanimously rejected QVC’s tender offer. The court also granted QVC the right to take testimony from witnesses relating to the board meeting and to deliver that testimony to the court by 5 p.m. Sunday, Nov. 21.
QVC has argued that Paramount had not adequately considered QVC’s offers, preferring to merge with Viacom regardless of economic considerations.
At the court hearing Nov. 16, QVC attorney Herbert Wachtell said Paramount’s board could not have fairly considered QVC’s most recent offer at the board meeting, which was held late in the afternoon on Nov. 15, and had time to prepare complex Securities & Exchange Commission documents on the action that it filed the morning of Nov. 16.
QVC’s announcement Saturday that its financing is in place was seen as a move to reassure the court about the viability of its offer and deflate Par’s argument that its board had not seriously considered QVC’s bid because it was conditioned on financing.
Meanwhile, the price of Paramount shares continued to drift downward, losing 50 cents to close Friday at $ 76.375. Viacom’s Class A and Class B shares both dropped $ 1.50 to close at $ 48.875 and $ 42.50, respectively. QVC tacked on 37 1/2 cents to close at $ 50.75.