QVC Par chase not faring well

Things are looking increasingly bleak for Barry Diller in his seeminly endless quest to acquire Paramount Communications Inc.

The Paramount board of directors, in an action overshadowed by Friday’s dramatic stock market plunge, unanimously endorsed the latest offer from rival bidder Viacom to take over the company.

The board’s decision will make it even more difficult for QVC Network to remain a contender with the bid it has on the table.

And while he’s not formally revising any of the bidding procedures, Para-mount chairman Martin Davis urged shareholders to tender their shares by midnight Feb. 14, the expiration date of both offers.

The board “has resolved that it is in the best interests of Paramount and its stockholders to end the auction process whether or not QVC or Viacom obtain tenders for 50.1% of the outstanding shares,” Davis said. Paramount is negotiating with both bidders regarding this aspect of the bidding procedures.

The QVC camp has tried to persuade professional investors — the arbitragers and hedge-fundmanagers who hold most of Paramount’s stock — that QVC shares won’t decline as much as they think if QVC succeeds in acquiring Paramount and that Diller is the best long-term manager of the assets. But QVC’s pitch may be futile.

Most analysts and traders on Wall Street say they continue to feel more comfortable with Viacom’s bid (its back-end value is protected by guaranteed minimum stock value unlike QVC’s), and they are dismissing as irrelevant Diller’s argument that his management expertise will provide the greater long-term value.

“Diller’s probably right,” notes Porter Bibb, director of corporate finance at Ladenburg, Thalmann & Co. “But the audience he’s talking to isn’t interested in long-term values. To these professional investors, 15 minutes is long term.”

Bibb contends that the only way Diller can hope to win is to guarantee that BellSouth will prop up its bid through further open-market purchases of QVC stock, raising the cash portion of its bid above Viacom’s $ 107 a share, or both.

Paramount shareholder attorney Arthur Abbey said that while BellSouth might be able to get away with buying shares, any move by QVC to raise the cash portion of its bid would probably send the takeover battle back to the Delaware courts. Even so, Abbey said, shareholders could argue that such a move is in their best interest. “If it results in a better bid, that’s all I care about,” he said. “I don’t care how it gets there; value is value, however it comes about.”

BellSouth has given no indication that it is prepared to make further open-market purchases of QVC stock.

Separately, both Viacom and QVC made public reports prepared by their respective financial advisers — Smith Barney Shearson and Allen & Co. — which were presented to Par adviser Lazard Freres. As could be expected, each report purported that its bid represented the better offer under a range of stock price scenarios.

And S.G. Warburg upgraded Paramount to a “trading buy” from “hold” with a price target for the next two months of $ 81 to $ 82. Analyst Lisbeth Barron said regardless of whether QVC or Viacom wins the bidding war, the perception among investors is that both bidders’ stocks at current prices are trading well below their customary cashflow multiples and “that creates a buying opportunity for the target (Paramount).”

The board’s decision was announced after the market closed Friday. Par lost $ 1.63 to close at $ 76.50; QVC dropped $ 2 to close $ 42.88. Viacom Class B shares slid $ 1.13 to finish at $ 32.88.