Par board weighs Delaware justice

The Paramount board of directors met Monday afternoon to decide the best way to comply with a stern Delaware Supreme Court ruling that the company must shop itself fairly to all interested bidders.

But while Wall Street waited anxiously for the auction process to begin, the meeting was still in progress late in the night and no announcement from the company was forthcoming.

Sources predicted a difficult session as directors looked for the best way to appease the Delaware court, yet not lose control of the sale process.

The board is proceeding under the scrutiny of Chancery Court Judge Jack Jacobs, whose earlier ruling was upheld by the state Supreme Court and who is charged with applying the court’s decision. If unhappy with the board’s actions, Jacobs himself could set down guidelines for conducting an auction.

With that in mind, the board’s agenda was to include whether a committee of independent board members should be formed to review bids. Sources said the board is mindful of distancing itself from management following the court’s admonishment last week that the board had not fulfilled its fiduciary duty to shareholders by ignoring QVC’s bid.

But sources say Paramount chairman Martin Davis is determined to retain control of the sale process, despite the company’s stinging defeat in court, and would try to convince the board that an independent committee was not necessary to fulfill the court order.

While both the Viacom and QVC tender offers were scheduled to expire at midnight Monday, both were expected to be extended pending an announcement from the board regarding the auction process. As of Thursday, 16.9 million shares had been tendered to QVC’s offer with just 9.2 million shares tendered to Viacom.

An auction could set off a new round of escalating bids, despite the already pricey offers on the table. (Analysts increasingly are saying the price is already too high given the heavy debt burden that will be assumed by the surviving entity.) And Wall Street sources say it will be up to Viacom chairman Sumner Redstone to raise his bid if he wants to remain in the race. Viacom’s offer is valued at about $ 9.3 billion, still significantly below QVC’s bid, which stands at about $ 9.8 billion.

Redstone has not said whether he will raise his bid. But while Wall Street has been licking its lips in anticipation of another round of bidding, there is the impression in some financial circles that Redstone may be tiring of the pursuit and may be loathe to raise his bid. They note that Redstone made a run at Orion Pictures in the late 1980s but let Metromedia’s John Kluge walk off with the company when the price of the stock got too high.

Speaking at the PaineWebber media conference last week, both Redstone and his second in command, Frank Biondi, noted Viacom’s strength and growth potential regardless of a Paramount merger (Daily Variety, Dec. 13).

While some took the presentation as an indication that Viacom was stepping back, other Wall Street veterans believe Redstone will be back at the bargaining table once the Paramount board acts.