Viacom and its investment bankers were in discussions late Thursday night with backer Blockbuster Entertainment about increasing its participation in the bid for Paramount Communications, sources said. While Blockbuster is expected to at least double its $ 600 million stake and allow Viacom to top QVC’s $ 10 billion offer, the question remains as to what Viacom will give the homevideo giant in return.

Blockbuster chairman H. Wayne Huizenga may want more say in Paramount in exchange for a bigger financial contribution.

New bid expected

Despite the last-minute wrangling, most sources said they fully expected Viacom to have a new, higher bid on the table, perhaps before the market’s opening bell this morning.

“There’s no way they’re not coming back,” one investment banking source said. “Blockbuster has just as much to gain, if not more, from this deal as Viacom does.”

In the past year, Blockbuster has made a major push into Hollywood, snatching up Spelling Entertainment and Republic Pictures, and Huizenga has made no secret of his desire to build his company into a diversified entertainment powerhouse.

Getting a grip

For that reason, Huizenga is believed to be looking for more control than he was granted under his original deal with Viacom, which gave him one board seat but no voting control. One rumor has Viacom and Blockbuster effectively merging and pursuing the deal as full partners.

But skeptics said the time frame was too tight to pull off such a complicated deal and still be able to put a new deal on the table before tonight’s midnight deadline, when both tender offers are set to expire.

Whatever the true scenario, sources close to the situation said they doubt Huizenga would risk losing Paramount altogether by preventing Redstone from returning to the bargaining table.

If Viacom does not come up with a higher bid and more than 51% of Paramount shares have been tendered to QVC’s offer, the battle could be considered as good as over even though QVC is required to keep its offer open another 10 days (to make sure all shareholders have a chance to participate).

Feb. 14 deadline

If Viacom comes back with a higher bid, the ultimate fate of Paramount may not be decided until next month. Paramount has stipulated under its auction procedures that all offers must expire by Feb. 14, which means the final bids would have to be on the table no later than Jan. 31.

Paramount gained 25 cents Thursday to close at $ 78.50, reflecting arbitragers’ belief that Viacom would be back. Viacom’s Class A shares lost 87.5 cents to close at $ 47 a share while its Class B stock dipped 75 cents to close at $ 42.75. QVC lost $ 1 to close at $ 39.50.