Throwing extra weight behind its bid for Paramount Communications Inc., Viacom Inc. secured a $1.2-billion investment from Nynex Corp. on Monday in a move the companies hailed as an important "strategic relationship" between an entertainment giant and a telephone company.
The deal, following a similar $600-million investment in Viacom by Blockbuster Entertainment last week, forms a unique three-way partnership as technology promises to reshape the entertainment industry.
Analysts expect Viacom to use the cash infusion--which would give the Baby Bell about a 14% stake in Viacom--to sweeten its offer for Paramount, which faces a rival bid from QVC Network Inc.
Nynex will buy $1.2 billion worth of preferred stock carrying an annual dividend of 5% and convertible into Viacom Class B non-voting shares at a price of $70 a share. The deal, analysts said, brings the Viacom offer closer in line with QVC's rival bid but does not close the gap.
QVC's bid, valued at about $9.8 billion, includes a cash component of $30 a share. The Nynex and Blockbuster investments could boost the Viacom bid to $24 in cash per share, from $9.10.
Despite speculation to the contrary, Viacom Chairman Sumner Redstone on Monday maintained that he has no plans to change the terms of his Paramount offer. He deflected suggestions that the investment from Nynex was aimed at sweetening Viacom's bid.
"Paramount has never asked us to raise our offer, we have never discussed with Paramount to raise our offer, and at the present time we don't see anything out there that warrants us considering that," he said.
QVC had no comment on the Viacom-Nynex deal. Today, the home shopping network is expected to present the Paramount board with proof that it has obtained the necessary financing to support its bid, according to a knowledgeable source. Chemical Bank has agreed to serve as QVC's lead underwriter in raising more than $3 billion in bank financing.
Viacom's stock closed unchanged at $58 a share Monday on the American Stock Exchange, while Paramount gained 75 cents to $78.50 on the New York Stock Exchange. Nynex slipped 37.5 cents to $46. QVC Network lost $2.25 to $55.75 on Nasdaq. The Nynex deal was announced after the market closed.
Redstone and Nynex Chairman William Ferguson said their deal will help forge a powerful alliance between a company that owns some of the best-known brand names in entertainment--Viacom owns MTV, Nickelodeon and Showtime--and a Baby Bell hungry for programming to deliver over broad-band fiber-optic networks.
"The whole telecommunications, information and entertainment businesses are merging," said Ferguson. "It's important that we have a relationship with a content provider that helps to fill our strategic portfolio."
Nynex's investment in Viacom mirrors a deal made earlier this year between Time Warner and US West.
In that transaction, US West invested $2.5 billion for a 25% stake in Time Warner Entertainment. Although the companies said the investment would help Time Warner develop high-tech cable systems, analysts saw the deal equally as a maneuver to help unburden Time Warner from debt.
Paramount Chief Executive Martin S. Davis welcomed the Nynex investment. He said the move "dramatically increases the strategic value" of the proposed merger and "strengthens our ability to distribute our products globally."
Nynex is the nation's fifth-largest local telephone company, based on 1992 statistics, serving most of the telephone users in New York state and New England. It's also involved in the cellular telephone business, with more than 445,000 customers.
In Nynex, Viacom has partnered with a Baby Bell that is also increasingly knowledgeable about the cable TV business.
Nynex is the largest cable TV franchise operator in Great Britain, where cable TV is still in the early stages of development. Nynex's British cable systems deliver video and voice/data services over the same lines, which current federal regulations prohibit in this country.
While Redstone said Viacom is still open to forging a similar relationship with a cable company, he noted that the alliance with Nynex foreclosed the possibility of a deal with another Baby Bell. As reported, Viacom has discussed a $600-million investment with Cox Enterprises fashioned like the one it made with Blockbuster.
Viacom had been close to an agreement with Southwestern Bell for the telephone company to become a partner in Viacom's cable TV systems and had also been reported to be in discussions with Chicago-based Ameritech.
"We married Nynex, and that's a marriage that's going to hold," Redstone said, borrowing language he used to describe the proposed merger with Paramount. "We don't believe in polygamy."