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On the Viacom watch

With less than 48 hours left before QVC Network’s tender offer for Paramount Communications is set to expire, Wall Street has grown increasingly anxious over the likelihood of a higher bid from friendly suitor Viacom.

Rumors run wild

While Viacom has kept silent regarding its plans, financial markets Wednesday were rife with rumors about what Viacom would do next. Speculation ranged from Viacom upping its tender offer to $ 88 a share cash for 75% of outstanding Paramount shares (its current offer stands at $ 85 a share cash for 51% of the outstanding shares) to asking Paramount for more time to come up with a higher bid, to Viacom chairman Sumner Redstone walking away from the deal altogether.

“The arbitragers are terrified that the game’s finally over because Sumner no longer wants to play,” quipped one Wall Street veteran.

Over the last week, Viacom has been in discussions with backer Blockbuster Entertainment about doubling its current$ 600 million investment — that’s approximately the amount of money analysts say Redstone will need to raise in order to top QVC’s bid. Market sources speculated that when Blockbuster chairman H. Wayne Huizenga checked out of the Peninsula Hotel in New York Wednesday, it was an indication that those discussions had ended. A banker for Paramount said the company had not received a revised bid from Viacom, but also had not been asked for any type of extension thus far.

Redstone not finished yet

The general consensus among Wall Street analysts is that Redstone will return to the table at least one more time, whether or not he ultimately prevails. “Viacom and Blockbuster have not been in these long intense discussions about whether or not they will proceed,” said analyst Edward Hatch of UBS Securities. “They have been shaping a new bid.” And most believe Viacom will have it on the table before Friday’s midnight deadline.

“If they try to delay it until next week, they will put themselves at a severe timing disadvantage,” said S.G. Warburg analyst Lisbeth Barron.

Under the auction procedures drawn up by Paramount, a winning bidder is required to keep its deal open for 10 additional days once 51% of the outstanding shares has been tendered to its offer, while the losing bidder is required to withdraw its offer. But it’s unclear what would happen if neither offer meets the 51% threshold by the time the offers are set to expire.

Par shares jump

Reflecting the market’s belief that Viacom will be back, shares of Paramount bumped up 75 cents to $ 78.25. Shares of Viacom’s Class A stock slipped 62.5 cents to close at $ 47.875, while its Class B shares slipped $ 1 to close $ 43. 50. QVC, meanwhile, gained 75 cents to close at $ 40.50.

Based on Wednesday’s closing prices, traders valued QVC’s offer at roughly $ 10.2 billion or $ 84.70 a share, and Viacom’s at $ 9.4 billion, or $ 78.65 a share.

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