Street awaits Redstone’s next move

Wall Street has begun its vigil to see whether Viacom chairman Sumner Redstone will come up with a higher offer for Paramount Communications.

On Wednesday, the Paramount board rejected Viacom’s front-loaded tender offer and reaffirmed QVC Network’s higher overall bid. The board also said it will hold fast to its decision not to extend a Feb. 1 deadline for best and final bids.

‘Til Jan. 21

The board’s action means Redstone has until Jan. 21 — the day both Viacom’s and QVC’s tender offers are set to expire — to come up with a better bid.

But if Viacom wants to stay in the game, it will have to close the significant gap in values that has developed between its offer and QVC’s. Based on Thursday’s closing stock prices, Viacom’s offer is worth about $ 75.78 per share, or $ 9 billion, while QVC’s is valued at $ 83.78 per share, or $ 9.9 billion.

Most on Wall Street believe Viacom has the wherewithal to significantly sweeten its bid; with $ 600 million of annual cash flow, merger partner Blockbuster Entertainment could surely increase its $ 1.25 billion investment. But no one is sure that Redstone has the desire to keep up the fight.

“If they were going to come back with a better offer, why didn’t they just do it rather than put this lowball bid on the table?” one analyst asked. Some believe Viacom may be satisfied to merge with Blockbuster and live to hunt another day.

Arbitragers, who have helped keep the deal buzzing on Wall Street for four months, were surprisingly sedate in the wake of the board’s ruling. “We’re just waiting on Sumner,” one arb said.

Viacom isn’t talking, and sources said it looks like the company has returned to the news blackout it carried on before announcing its eleventh-hour revised bid.

QVC confident

QVC, which had petitioned the Paramount board to accelerate the auction process, seems confident that it will be able to close its offer by the Jan. 21 expiration date (as of Jan. 7, 26.8 million Paramount shares had been tendered to its offer).

While the company had threatened to take legal action to speed up the auction process, it’s now shying from that route, fearing it would only confuse the matter further.

While front runner’s stocks have tended to drop throughout the course of the Paramount saga, QVC Thursday bucked the trend, gaining 50 cents to close at $ 41 .50. Viacom’s Class A shares tacked on 50 cents to close at $ 42 while its Class B stock added 12.5 cents to close at $ 39; merger partner Blockbuster gained 37. 5 cents to close at $ 29. Paramount gained 62.5 cents to close at $ 77.88.