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QVC says Par still unfair

Barry Diller’s QVC Network Wednesday said Paramount directors have adopted unfair bidding procedures — a sign that Paramount has yet to squelch criticism that it’s playing favorites among suitors.

The complaint comes just six days after Paramount was sharply chastised by the Delaware Supreme Court for ignoring QVC’s hostile bid in favor of a friendly sale to Viacom at a lesser price.

Rebuked by the court, which sided with QVC, Paramount’s board of directors and lawyers Monday devised a plan to offer the entertainment company tothe highest bidder. They gave QVC and any other suitor one week to make new offers.

In a letter to Paramount financial adviser Lazard Freres, QVC lawyer Martin Lipton objected to the board’s power: to extend the submission date for secret bids, now scheduled for Dec. 20; to negotiate the bid of one bidder with another; and to change the procedures at any time without prior notice.

Instead, QVC believes the preferable auction approach is open and public bidding until the highest bid is received. QVC’s offer is valued at about $ 10 billion, Viacom’s at $ 9.4 billion.

QVC also complained that the board could still use its “poison pill” plan to thwart a tender offer.

“The past record of the board in this matter certainly does nothing to inspire QVC’s confidence that the board will be objective,”

It pointed out that a committee of independent directors was not formed, and directors who currently hold management positions within the company — including chairman Martin Davis, president and COO Stanley Jaffe, CFO Ronald Nelson and Paramount general counsel Donald Oresman — will again be involved in recommending a candidate to shareholders.

QVC asserted Par has set up “procedures that provide no assurance of fair treatment” and gave two examples of scenarios in which it fears the board could use the procedures to favor Viacom:

o QVC is the higher bidder at 4 p.m. Dec. 20, when the bids are due at Lazard Freres. The Par board decides to negotiate the QVC bid with Viacom, extend the submission date and elicit a higher Viacom bid, now made with knowledge of the QVC bid.

o Viacom is the high bidder at 4 p.m. Dec. 20. The board announces that its procedures contemplated a single round of bidding with each bidder submitting its best and highest offer. Therefore any subsequent, higher QVC tender offer is blocked.

In addition, QVC said, the timing procedures are unnecessarily drawn out, and shareholders would not receive cash in a bidder’s tender offer until February 1994 at the earliest.

It also said the timing procedures are unworkable. While the procedures require a winning bidder to extend its offer for 10 business days following the date that all conditions are met — including the minimum stockholder participation — QVC says this is unfeasible because under securities laws, extension of an offer automatically grants people who have already tendered the right to withdraw.

QVC also contends the provision is unworkable because it stipulates the offer must remain open for 10 business days after the minimum condition is satisfied — yet one cannot know whether the minimum condition is satisfied until the offer closes.

Not holding out much hope that the Par board will completely overhaul its auction process, QVC proposed modifications:

o Both sides should be present at the opening of any bids with full opportunity to review and copy the other bidder’s offer.

o Both sides should be required to agree that all tender offers (including increased offers) should be required to close simultaneously, with neither bidder having a timing advantage.

o The offer timetable should be accelerated. QVC said there is no reason for the board to wait until Jan. 7 to evaluate offers received Dec. 20. It suggested Dec. 23.

Paramount, for its part, said it will review the suggestions and make adjustments if necessary.

QVC is already asking the Delaware Chancery Court to force Viacom chairman Sumner Redstone to answer questions concerning purchases of Viacom stock in the weeks and months before its proposed merger with Par announced Sept. 12.

QVC is also seeking information about purchases of Viacom’s stock in Sept. and Oct. made by WMS Industries — a videogame maker in which Redstone holds a 24.9% stake. There have been allegations that such purchases were made to prop up the price of Viacom’s stock and thus bolster its stock and cash bid.

Redstone contends he made no purchases of Viacom stock while in negotiations with Paramount and that he was unaware of the WMS purchases. The court has not yet responded. The Securities and Exchange Commission is also looking into both issues.

Meanwhile, the Delaware Chancery Court told counsels for QVC, Paramount, and Viacom that it expects the parties to reach a settlement in connection with Paramount’s $ 100 million termination fee with Viacom.

The court said that a status letter regarding the settlement should be provided by the close of business Friday.

In addition, the court said the QVC case will be handled by Vice Chancellor William Chandler, who is replacing Jack Jacobs — who wrote the Chancery Court’s original decision that was upheld by the Delaware Supreme Court — for “reasons of internal court administration.”

While some Wall Street sources downplayed both the QVC actions and the SEC investigation as “par for the course in this type of takeover battle,” others said they could see the moves conceivably leading to a disqualification of Viacom’s bid.

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