Last word in Delaware

It’s all over but the shouting in the last round of litigation over Paramount, after it and suitor Viacom filed reply briefs Tuesday in Delaware Supreme Court.

The shouting itself comes Thursday, when counsel for the two companies make oral arguments asking the court to reverse last month’s Chancery Court dismissal of lockup pacts between Viacom and Paramount that benefited QVC Network.

In its brief, Paramount contested QVC’s assertion that it must consider the shopping channel’s bid. It denies it’s up for sale, arguing that the proposed change of control to Viacom chief Sumner Redstone does not constitute a wholesale breakup of the company or the abandonment of its future goals.

The success of this claim will depend on the court’s view of Revlon vs. MacAndrews & Forbes, a landmark ruling that requires companies on the block to consider all offers and sell to the maximum bidder.

Paramount cited its Nov. 10 purchase of publisher Macmillan Inc. as proof that the company is not dissolving “but instead is continuing to pursue its long-term strategic goal of becoming a global, diversified media and entertainment company.”

Paramount argued that to use a “change of control” as an all-purpose litmus test to invoke Revlon is fundamentally unsound, as it would effectively deter publicly held Delaware businesses from entering into strategic mergers. All such mergers, it said, would become “sales” and trigger Revlon, thus defeating the purpose of such moves.

Studio defense

The studio also defended its board’s discretion to implement key lockup agreements worth about $ 350 million favoring Viacom. Both Viacom’s and QVC’s tender offers require 51% of the shares outstanding. Shareholders who tender into the failed offer will end up in the back end of the successful offer and get only securities — no cash — in return for their shares.

“Only by deploying the rights plan solely for the best transaction for Paramount can the board protect the stockholders and assure fair treatment,” the brief said.

Par shareholders, who have launched a class action suit against the company, filed a brief over the weekend calling for the company to weigh QVC’s offer in the interests of maximizing value.

Viacom’s brief also urged the court to uphold the agreements, saying the options were granted to induce it to bid, not to deter other bidders. It cited comments from Paramount investment banker Lazard Freres that the options “should not materially deter a higher-priced transaction to merge with or acquire Paramount,” adding that Par’s board — not market speculators — should be the only arbiter of what is best for the company.

Investment types have calculated the value of the deals’ back ends — or stock portions — by comparing the daily closing prices of Viacom and QVC. But since neither back end ensures a certain price at the deal’s close, it is impossible to project exactly what they will be worth.

Separately, Viacom asked the FCC not to allow the transfer of seven Par stations to QVC, according to Federal Filings Inc. Viacom said QVC only wants the stations so it can sell them, arguing that the deal would require regulators to waive cross-ownership and multiple-ownership rules temporarily.

QVC maintains that the FCC has previously waived rules in similar situations where some transferred assets were due to be sold subsequently.

QVC shares closed down 38 cents at $ 44.25, while Paramount stock ended unchanged at $ 79.25. Viacom Class A shares settled up 25 cents at $ 48 and Class B shares finished up $ 1 at $ 43.75.

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