Aggressively boosting its bid, Viacom on Sunday substantially revised its merger proposal with Paramount Communications and essentially matched the unfriendly tender offer made last week by QVC Network Chief Executive Barry Diller.
The revised terms, which come only three days before the QVC Network tender offer was scheduled to commence, now adds pressure on Diller to up the ante if he wants to continue his bidding war over the Hollywood film and TV studio.
Viacom increased the total value of its bid to $10 billion and said it will launch a tender offer today to buy 51% of Paramount's outstanding stock for a cash price of $80 per share.
In a proposal that mirrors the QVC "two-step" strategy, Viacom's $4.8-billion cash tender would be followed by the purchase of the remaining 49% of Paramount for Viacom stock valued at $80 per share, based on Friday's closing stock price.
Viacom said its tender offer had enough flexibility to complete its proposed merger in either a one-step or two-step transactionand that Paramount shareholders "would receive the same overall consideration." At present, the $80-per-share value includes $40.80 per share in cash, $5.94 in Viacom Class A, $28.26 in Class B and $5 in a new class of convertible exchangeable preferred stock.
Wall Street analysts said the revised Viacom bid markedly increases the prospects for the proposed Viacom-Paramont merger, which only days ago appeared in jeopardy in the wake of the hostile QVC tender offer, which investors had said was more attractive.
"If the bids are close, the Paramount board can make a reasonable business decision that the back end of Viacom is more valuable then the back end of QVC," said one analyst close to both parties. Viacom's "bid is surprisingly strong. (Redstone) not only got close (to QVC's offer). He duplicated it," the analyst said.
One question remaining unanswered in Viacom's announcement Sunday was how the company would finance its proposed tender offer. Viacom so far has raised an additional $1.8 billion in financing from Baby Bell Nynex and home video giant Blockbuster Entertainment.
But that still leaves Viacom about $3 billion short, analysts pointed out, compared to QVC, which has already raised $2 billion from four investors and arranged $3 billion in bank financing. QVC will received a $500-million investment from Liberty Media Corp., Comcast Corp., Cox Enterprises and Advance Publications, all contingent upon a successful tender offer.
A Viacom executive said the company has already secured $1.5 billion in bank financing and was confident that it could gain bank commitments for another $1.5 billion.
Under the revised proposal, Viacom in the second step would exchange 0.20408 of a share of Viacom's Class A common stock, 1.08317 shares of its Class B stock, and 0.20408 of a share of a new class of its convertible exchangeable preferred stock.
As expected, Redstone did not bring in any new investors as part of his revised offer. Previously, Nynex agreed to invest $1.2 billion and Blockbuster Entertainment $600 million in Viacom in exchange for about 6% and 3% of the stock, respectively, on a fully diluted basis.
Viacom and Paramount also got a boost last week when the waiting period for the Hart-Scott-Rodino Act expired, suggesting that the Justice Department would not object to the merger on antitrust grounds.
A spokesman for QVC said the company will respond once it has received Viacom's tender offer and has had an opportunity to study it.
Both the Viacom and Paramount boards met separately Sunday in New York and unanimously approved the revised merger proposal.
Over the preceding weeks, Redstone has stated that he saw no reason to revise his merger proposal, even in the face of a competing offer from QVC Network, because the Paramount board had not requested it.
Apparently, it took the hostile tender offer from QVC for Redstone to change his mind, although a knowledgeable source said the revision was done at Viacom's own initiative and was not specifically requested by Paramount.
Now that Viacom and QVC's offer are equivalent, Wall Street is looking to see if Diller will come back with a higher offer and increase the cash component of QVC's cash-and-stock tender offer.
"Now the auction has begun," said one analyst who asked not to be named. "All Diller has done now is make a little noise, and we'll see if he was just being opportunistic. It's crunch time."