The latest blow to Redstone’s three-month quest to merge with Paramount was dealt by Delaware Chancery Court Judge Jack B. Jacobs. Among other things, Jacobs said Paramount improperly refused to consider a higher bid by QVC. The judge also threw out a so-called lockup provision, which would have given Viacom more than $400 million if the merger failed. This, says Salomon Brothers analyst Margo Vignola, “really levels the playing field.”
It could also make Paramount shareholders much richer. While Paramount and Viacom head for the appeals court–Paramount having called the ruling “wrong on both the facts and the law”–the suitors will have to reach for their wallets. Diller’s current offer, valued at almost $90 a share, exceeds Viacom’s bid by $1.2 billion. If Viacom matches the bid–and it is expected to do so–Diller will probably raise his offer once again. Already, analysts are questioning whether Paramount is worth it at the current price. After all, Viacom’s opening bid was only about $70 a share.
To both companies, the price is apparently right, largely because a slew of companies are scrambling for the entertainment products to run on the Information Highway of the future and Paramount is the last major independent movie studio up for sale. QVC’s partners, for instance, include BellSouth, Comcast Corp. and Cox Enterprises. Viacom is joined by Baby Bell NYNEX and Blockbuster Entertainment.
Meanwhile, the war of words continues in what has become the most interesting and acrimonious takeover battle in years. Redstone has derided Diller as a jewelry merchant who would bring nothing tangible to Paramount. Diller, in an interview from his Malibu, Calif, home had few kind words for Viacom. “The issue is not whether you get ‘Beavis & Butt-head’ [a Viacom show] and can make a movie out of it,” Diller said. “The great ‘strategic alliance’ idea balances itself out by a whisker. Does [Viacom] have anything that Paramount can’t otherwise get? They say yes. I say that ain’t true.” Viacom’s position: “We expect to prevail on appeal.”
The Delaware Supreme Court will hear opening arguments on the Viacom and Paramount appeal next week. Some legal experts contend that judge Jacobs’s ruling will be difficult to reverse, partly because he has an excellent track record on appeal. Either way, the ball is in Viacom’s court, and now it’s time for Redstone to make a shot as the clock runs down.
