Viacom supremo Sumner Redstone’s weekend preemptive strike, raising his bid for Paramount from $ 80 to $ 85 a share, has pushed QVC topper Barry Diller into a corner.
Time is running out on Diller, who according to industry sources was about to up his bid to $ 85 a share, with a hefty $ 2 billion cash infusion from BellSouth, before Redstone beat him to it. Industry consensus is that if QVC doesn’t come back quickly with a bid of at least $ 90 a share, the home shopping company will be left behind.
This won’t be easy. At $ 85, Par is already on the block at a stratospheric price of more than $ 10 billion. According to industry analysts, Viacom already has pushed the price beyond 20 times estimated 1993 cash flow. Whoever wins out will have paid such a high price that making the deal work in the near future will be a tricky proposition at best.
The Wall Street view is that no matter who wins, the stock of the winner will take a short-term hit.
“Viacom and QVC have to be looking at how this will work long term — 10 years out,” said Bernstein Research analyst Tom Wolzien. “And that isn’t the normal timetable for investors, who might not be so patient. When the interests of investors and management aren’t the same, that can make it harder for management to run its game plan.”
But that’s not fazing Redstone. “Our action today will address short-term interests, while emphasizing the long-term benefits of this merger,” said Redstone in a pre-pared statement. “It should allow us to effect the merger promptly and enable us to get on with the task of building value for the benefit of the stockholders, customers, employees and business partners of both companies.” Whatever difficulties lie ahead for the victor, Redstone’s weekend sneak attack was a brilliant move. Not only did it force Diller back to the negotiating table with his would-be partners, it also weakened QVC’s lawsuit in Delaware Chancery Court, which will be heard Nov. 16. The QVC suit alleges Viacom and Paramount’s agreement, which includes a “poison pill” and heavy termination penalty fees, has denied shareholders the chance to opt for a better offer.
“It will be hard for Diller to make his case,” said a veteran mergers and acquisitions attorney, “because the other side in the bidding war has steadily increased the price it’s willing to pay.”
But while Redstone may have been the victor in the latest battle, sources close to QVC say Diller isn’t ready to surrender and that the situation remains “extremely fluid.”
QVC is still trying to tiptoe around the delicate problem of replacing potential antitrust magnet John Malone — his Liberty Media has a 22% stake in QVC — with telco BellSouth.
The decision last week to scrap the proposed QVC/Home Shopping Network (which is 41.5% owned by Liberty) appears an initial step. And the smart money on Wall Street believes Diller and Malone will be able to finesse it.
“If QVC doesn’t get a clean, open shot at Paramount either from a regulatory point of view or a higher price point of view, they ain’t going to win it,” noted money manager Mario Gabelli, whose funds are one of the largest shareholders in Paramount with a 6% stake.
“Diller and Malone are on the same wavelength and their agendas overlap,” Gabelli explained. “Right now the agenda is for Diller to win Paramount, and if Malone has to step aside for that to happen, he will. Three months, a year, two years from now, he comes back through another window. These are two very practical individuals.”
Meanwhile, QVC may be facing substantial hurdles on the regulatory front. The Federal Trade Commission on Friday requested the company provide more information regarding its proposed acquisition under Hart-Scott-Rodino antitrust legislation. While QVC downplayed the request as routine, others say it could present a serious roadblock.
The deal clock is ticking. By bumping up its offer when it did, Viacom still will be able to close its tender offer on Nov. 22, two days before QVC’s offer can close. That means Diller has a few days to increase his offer or run the risk of shareholders selling out to Viacom.
There’s still the other option — walking away. In part, the bidders for Paramount have justified the premium price, arguing that in terms of software, it’s the last available blue chip.
However, some, like Oppenheimer analyst Jessica Reif, wonder if that’s really the case: “If I were Diller, I’d be talking to Matsushita about MCA or Sony about Columbia.”