Redstone sweetens Par offer

Sumner Redstone has once again upped his ante in the ongoing poker game for Paramount Communications without topping the hand Barry Diller has already put on the table.

But while Viacom Tuesday unveiled a revised bid that falls short of matching the overall value of QVC Network’s $ 10 billion offer, the new bid includes much more cash and price protections for the stock portion of its offer.

Some on Wall Street believe that may be enough to force Diller to revise QVC’s bid if he wants to stay in the lead. “Barry is not going to want to run the risk that Sumner has the better deal,” said money manager Mario Gabelli, whose funds represent one of Paramount’s largest shareholders.

Viacom raised the cash portion of its offer to $ 107 a share from $ 105 for 50.1% of Paramount’s shares. It also issued contingent value rights, safeguards that it said will help increase the certainty of a minimum value of $ 48 a share for the Viacom Class B common stock to be issued in the second-step merger. (Viacom is employing contingent value rights in its proposed merger with Blockbuster Entertainment.) Seeking to bolster the back end of its offer, Viacom added three-year warrants to acquire about 30.7 million Viacom Class B common shares at $ 60 a share.

In a letter to the Par board of directors, Redstone wrote, “The blended value of our new offer represents substantial value to Paramount stockholders and is significantly more certain than the blended value of QVC’s offer.”

Some on Wall Street agree. “While basically equal in economic terms, Viacom offers more cash and a firmer back end and therefore the better deal at this point in time,” said Goldman Sachs analyst Fred Moran.

Closer to $ 9.8 bil

While Viacom put the value of its new offer at $ 10.5 billion, most Wall Street analysts value it closer to $ 9.8 billion. Analysts provided a range of values for Viacom’s new bid — generally $ 80-$ 83 a share — depending on how they value the back end. Based on Tuesday’s closing prices, S.G. Warburg analyst Lisbeth Barron valued Viacom’s offer at $ 83.06 a share vs. QVC’s $ 84.82; UBS Securities Edward Hatch put Viacom’s bid at $ 80.63 compared with QVC’s $ 84.83; and Oppenheimer’s Jessica Reif valued Viacom’s offer at $ 81.20 as opposed to QVC’s $ 84.45.

While Paramount’s stock benefited from the announcement of the revised bid and the prospect of a continuing bidding war — it gained $ 1.25 to close Tuesday at $ 80 a share — shares of both Viacom and QVC posted losses. Viacom’s Class A shares fell $ 1.75 to $ 40.25; its Class B shares slid $ 1.38 to $ 37.75 . QVC slipped 50 cents to close at $ 43.

But even though Viacom’s new offer lags behind QVC’s overall value, the higher cash portion –$ 107 vs. $ 92 ($ 900 million more of cash than QVC) — and back-end assurances have made investors sit up and take notice. “It’s basically a toss-up,” said one large Paramount shareholder. “This could now go either way.”

For that reason, most expect Diller to come back with a revised bid — with the help of telco backer BellSouth — despite statements last week that he had put his best bid on the table.

Last-minute moves

But if most believe Diller will up his bid, when he will do so is still very much a matter of conjecture. Both deals are scheduled to expire at midnight Jan. 31, which is the final deadline for bids.

“This is going to be like ‘Final Jeopardy!’ ” NatWest Securities Paul Marsh said. “They’ll both come back at the very last moment with a final and best bid, and the winner will be decided then.”

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