Paramount 1994 What Do You

Paramount 1994

What do you think of Redstone's tactics in making the initial offer to Para-mount? The price? The deal structure? The lock-up option? The termina-tion fee? What did the market think of the initial offer?

The initial offer to Paramount was designed to provide shareholders with an increase in the value of their common stock. While at the same time, it was making certain that they were obtaining a valuable organization with the potential for long-term growth. The price was above where the common stock was trading, which is indicating that shareholders would receive an increase in value. The structure was designed to limit the impact that the deal would have on Viacom's common stock. The lock up option was devised to prevent speculators from profiting on the deal over the short-term. The termination fee was illustrating how they were serious about the offer. At first, the market viewed the deal favorably with Paramount seeing an increase in the price of their stock. ("Paramount Communications," 1994)

Why did Viacom change its bid on October 21?

This is because QVC stepped forward and offered a competing bid that was considered to be more favorable in comparison with Paramount. ("Paramount Communications," 1994)

What do you think of the behavior of Paramount's board before the Dela-ware Court deci-sions? What is the purpose of Paramount's rights plan (i.e., the poison pill)? What do you think of the auction procedure devised by Par-amount's board after the Delaware Court deci-sions?

The board was trying to prevent QVC from having any kind of strategic advantage over them at all costs. The purpose of the rights plan was designed to provide an additional incentive that QVC would be unable to match. The auction procedure was devised as a way of allowing the shareholders to see which offer will provide them with greatest benefit. While at the same time, it is complying with the guidelines from the Delaware Supreme Court. ("Paramount Communications," 1994)

Explain what has happened with the stock prices of the three players from Septem-ber to the end of January. Specifically, explain the movements of QVC and Viacom stock as the likeli-hood of their winning changes. Make sure to look at November 24 and January 7.

For Paramount, the price of the stock increased from $52.00 to $83.00. Between November 24 and January 7, Viacom would trade in a price range of $46.25 to $51.00 for the class A shares. While, the class B shares traded between: $41.00 and $46.25. At the same time, QVC traded from: $39.25 to $46.50. In the case of Viacom and QVC, they are range bound based upon the uncertainty of the deal going through, with shares fluctuating to the higher end of the spectrum based upon these changes occurring. ("Paramount Communications," 1994)

What do you think of the plan by Viacom's investment bankers to use CVRs? What do the CVRs add to the mix?

The use of CVRs was a brilliant strategy to sweeten the deal for Paramount shareholders. What they are adding to the mix is the potential for them to receive an even greater price appreciation if they accept the offer. ("Paramount Communications," 1994)

What did the changes in QVC's final bid accomplish?

QVC increased the total price of the offer for Paramount shareholders. As they added a number of different elements including: a greater percentage of common stock conversion, the use of preferred stock and warrants. ("Paramount Communications," 1994)

Which of the two final bids is more attractive at the current stock prices of QVC and Viacom? Which of the two bids would you accept? Why? Is there any way you can use the current and/or past stock prices to figure this out? Think of how the stock prices of QVC, Viac-om, and Par-amount will change when it becomes clear who will win.