Viacom wraps Par marathon

After five months of plot twists and pricey rewrites, Viacom Inc. brought the curtain down on rival QVC Network Tuesday, making off with Paramount for $ 9 .85 billion or $ 80.16 per share, about $ 1.35 billion above its original offer.

The result is a new company involving three of the biggest players in the entertainment field that together comprise the world’s fifth largest media entity:

  • Viacom, a diversified entertainment company with significant holdings in cable networks, television syndication and motion picture theaters.

  • Paramount, whose holdings range from feature films and firstrun television to syndication, theaters and such live entertainment as the New York Knicks basketball team.

  • And Blockbuster, the video and music retailing giant that partnered with Viacom five weeks ago in its bid as it fought off QVC’s aggressive charge (Daily Variety, Jan. 10).

Early Tuesday morning, Viacom said investors had tendered 91.66 million shares, or 74.6%, of the studio’s outstanding common stock. Under the bidding rules, Viacom needed 50.1% of Par’s shares to extend its offer and require QVC to bow out.

QVC did just that a short time later, saying: “Our current situation requires brevity: They won. We lost. Next.”

Or, as one source close to QVC said: “They did not want to be un-gracious. But they certainly weren’t going to be gracious.”

Wall Street had expected Viacom chairman Sumner Redstone to close the deal after a statement issued Sunday by QVC quashed hopes that the shopping network would raise its bid.

Viacom is required to keep its offer open for another 10 days to allow investors who kept their shares or tendered to QVC a chance to tender. After that, proxy firm Georgeson & Co. will prorate the offer and the cable programmer will pay $ 107 per share for 50.1% with a package of mixed securities for the remainder.

The first step of completing the Paramount acquisition is March 11, when the Blockbuster deal should be finalized. The Viacom/Paramount deal must also pass regulatory muster, but it is expected to close perhaps as soon as late March.

It’s not as easy as it sounds. Blockbuster investors, who have seen their holdings slide $ 5 per share, or a total $ 1.02 billion, since the Jan. 7 merger announcement, aren’t too pleased with Viacom. The cable programmer is relying on Blockbuster for most of the cash flow needed to service $ 10.7 billion of debt — an annual $ 650 million, according to estimates.

“Cash flow is absolutely necessary and that is what Blockbuster brings to the party,” said Larry Haverty, analyst at State Street Research, which owns 3 million shares, or about 1%, of the videoretailer. “None of this works without Blockbuster’s cash flow.” Blockbuster holders may take some comfort from comments by Redstone. He said in a statement he would consider sales of assets whose cash flow did not justify their existence but that major sales were unlikely. Redstone also confidently predicted the merged company could refinance its debt and safeguard against fluctuating interest rates.

And Viacom president/CEO Frank Biondi told Daily Variety Tuesday, “We don’t have to divest anything to service our debt.”

Blockbuster chief exec H. Wayne Huizenga and backers control almost 25% of the shares. A total 51% is controlled by institutions that are expected to grill Viacom about its plans when the cable programmer takes its case to them in the near future.

Winning over B’buster

Biondi sounded confident that skeptical Blockbuster shareholders will soon be convinced of the soundness of the deal. “The problem is, we haven’t been allowed to take our case to the other Blockbuster shareholders about the combined long-term value of the company,” Biondi said. “Now we can and we think it’s a compelling story to tell.”

“If Mr. Redstone can go around the country and convince us that Viacom is as good a stock with Paramount as it is without it, then we’ll be very happy,” Haverty said.

While Haverty said he has not spoken with other Blockbuster investors, talk circulated of opposition by disgruntled shareholders.

Many analysts applaud Huizenga for making a good strategic move to prevent Blockbuster’s obsolescence in the coming information age, but they believe he sold too cheaply, given an average rate of growth above 40% in the past few years.

Others say without another interested party, Blockbuster investors have little recourse. Until QVC entered the arena, Paramount’s board of directors was ready to sell the company for $ 69.14 a share.

“Because the stock has dippedhere, there could be some pressure (by investors), but who is going to give a better price?” asked Keith Benjamin, analyst at Robertson Stephens. “On their own, would they be able to move into areas controlled by Paramount and Viacom? No. Investors are stuck here.”

Transition trouble

Even if the merger goes smoothly, the studio is seen having a tough time making the transition. The bitter five-month battle has drained morale and sapped the studio’s fortunes. Early next month Paramount expects to report a third-quarter loss of $ 35 million-$ 40 million, or 29 cents-33 cents a share, due to charges on disappointing holiday features and poorly rated cable product.

Still, upcoming film releases, including “The Naked Gun 33 1/3,””Clear and Present Danger” and “Beverly Hills Cop III,” are seen as potential bright spots.

And then there are the potentials for new growth offered by the three-way Viacom/Paramount/Blockbuster combination.

“The real growth of this company going forward is going to be on the multimedia platform,” said PaineWebber analyst Christopher Dixon. “That’s where they’re going to have a significant competitive advantage.”

Biondi is highly respected on Wall Street. Nevertheless, QVC chairman Barry Diller’s success in running a studio was touted by many as the one force that could revive Paramount, now lagging at the back of the B.O. line.

While QVC failed in its attempt to gain a major software and publishing empire, Wall Street theory — as gauged by the trading prices of both Par suitors — has maintained that the winner isreally the loser, and vice versa.

Share slippage

Tuesday was no exception. Viacom Class B shares fell $ 1.88 to $ 28 on enormous trading volume of 3.2 million shares. QVC stock rose $ 1.75 to $ 50.25 on equally heavy volume of 2.65 million shares. Paramount shares rose 88 cents to $ 77 per and Blockbuster closed unchanged at $ 24.88 per share.

Among other losers, Wall Street sources pegged Par shareholders, who had waited too long and endured too much for a mere $ 9 gain in Par’s share price, they said. Investment bankers on the QVC side were also considered out of the money, although financial types on the Viacom front stand to reap major deal fees.

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