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Blockbuster blocked

A Delaware judge Tuesday rejected an effort to prevent the proposed Viacom-Blockbuster merger, but lawyers for unhappy Blockbuster shareholders came back with another attempt to quash the deal.

The decision came on the same day that Viacom’s tender offer for Paramount Communications Inc. was to expire. Viacom plans to use the money from Blockbuster to help pay for Paramount.

Wall Street observers predicted the second assault on Viacom would also fail and dismissed it as less interesting than Tele-Communications Inc. chairman John Malone’s rumored interest in investing in Blockbuster.

Blockbuster shareholders feel cheated after seeing the value of their holdings erode from the original deal price of $ 31 per share — already below the 52-week high of $ 34.25 — to as low as $ 21. That bid is currently valued at about $ 24 per share. Blockbuster shares closed Tuesday at $ 26.25.

Delaware Vice Chancellor Carolyn Berger refused to grant a restraining order to prevent Blockbuster from spending $ 1.25 billion on Viacom Class B shares on or before March 11 to help Sumner Redstone’s company complete the first part of its merger with Paramount Communications.

Citing the nearly two months between the Blockbuster takeover announcement and the motion filing, Berger found that “the prospect of an injunction would create enormous uncertainty with widespread repercussions.”

“Paramount stockholders, for example, might reconsider their decision to tender to Viacom, and Viacom would be faced with a last-minute decision as to whether to proceed without the assurance of Blockbuster’s investment,” Berger responded.

Nevertheless, David Finger of Biggs & Battaglia confirmed he had filed a motion Tuesday afternoon on behalf of about a dozen Blockbuster shareholders — both individual and institutional — seeking a clarification of the decision and a preliminary injunction against Viacom. If denied, the investors are expected to appeal to Delaware’s Supreme Court.

Reports that TCI’s Malone is considering an investment in Blockbuster met with doubt on Wall Street. Observers said the rumors were likely stirred up by sources close to Blockbuster in a bid to force Viacom chairman Redstone to sweeten his offer. They also speculated that sources close to TCI could be trying to increase Viacom’s expense after Redstone launched an antitrust lawsuit against Malone last fall.

Malone “thinks if he can throw a wrench in that deal, he can get Redstone to drop his suit,” said one banker who declined to be identified.

Blockbuster and investment bank Allen & Co. did not return telephone calls. Sources close to Viacom said only that its deal was proceeding as planned.

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