`The Deal From Hell' Nears Its Denouementby
For someone enmeshed in a grim takeover battle, Sumner Redstone seemed almost giddy as he left a meeting with Wall Street analysts on Dec. 10. Asked where he thought the bidding for Paramount Communications Inc., which started at $69 per share, would end, Redstone parried: "Where do you think it's going to end? $100 a share? $120 a share?"
Where indeed? The chairman of Viacom Inc. is mum about his intentions. But if he wants to defeat a rival bid from QVC Network Inc., Redstone may have to ante up an additional $1 billion or so. On Dec. 14, Paramount's board of directors issued guidelines for an auction that turns the marathon takeover into a mad dash to the finish line.
For most of the combatants, the board couldn't have acted soon enough. After nearly 100 days of bids, counterbids, accusations, and lawsuits, the Paramount battle has earned a sobriquet rare on Wall Street: The deal from hell. Virtually everyone involved--from Redstone and Paramount Chairman Martin S. Davis to their lawyers and bankers--has been sullied (table). Even the image-buffers at Kekst & Co., the public-relations specialists, have gotten a black eye.
COURT REBUKE. Among those most damaged by the fight are Paramount's 11 outside directors. In a Nov. 24 decision on Viacom's original deal, a Delaware Chancery Court knocked the board as a pliant group who let Davis spurn QVC's hostile bid even though it was higher than Viacom's best offer. Now, with an auction that adheres to the court ruling, the board hopes to make amends.
Paramount has asked Viacom and QVC to submit their best bids by Dec. 20, after which the board will assess both and make a recommendation. But after a long and contentious board meeting, the directors voted to allow shareholders to tender their shares to either offer, so long as the bidders stay within the guidelines. As a result, the directors and Chairman Davis have surrendered much of their control over the process. "This really is a defeat for Marty Davis," says John Coffee, a corporate-law professor at Columbia University.
But QVC Chairman Barry Diller doesn't see it that way. In a Dec. 15 letter to Lazard Fr eres & Co., which is running the auction, Diller's lawyers harshly criticized Paramount's guidelines. One QVC adviser says the board could still tilt the process in Viacom's favor. Coffee and others have qualms, too. With only one round of sealed bidding, Paramount is inviting suspicion that it might tip off Redstone to Diller's hand. And some experts argue that the board should have hired its own advisers to weigh the offers. As it stands now, Lazard, a Paramount adviser criticized by the court for slighting QVC's earlier offers, is in charge.
Separately, Diller is scrambling to capitalize on another of the takeover's messy sidelights: The trading of Redstone and one of his investment vehicles, WMS Industries Inc., in Viacom stock. Redstone made heavy purchases in the months before the deal, while WMS, a gaming company of which Redstone owns 24.9%, said it bought 500,000 shares of Viacom in September and October. Viacom says it knew nothing of the purchases. But the Illinois Gaming Board is taking the Redstone connection seriously enough to make it part of a review of WMS's application to supply gambling equipment to Illinois riverboats. WMS declined comment.
As part of its ongoing lawsuit against Paramount and Viacom, QVC wants to depose Redstone and WMS executives to determine whether their purchases boosted Viacom's stock at critical points during the takeover. Paramount's board is also seeking similar data.
"DISGUSTED." In the miasma of embarrassing conduct, some say Redstone's actions may be the most dubious. "Sumner's stock-buying behavior has disgusted people," says one prominent banker outside the deal.
Sounds like Redstone could use some good PR. But he can't ask Kekst, the firm that until recently represented both Viacom and Paramount. Rival PR firms questioned Kekst's dual role from the start. And President Gershon Kekst says his firm stopped working for Viacom on Dec. 14, after his clients' interests diverged. Yet Kekst was still helping Paramount to publicize the auction even as it fronted for Viacom on its reaction to the news.
"There are a lot of competitors who would like to throw stones at me," says Kekst. "I guess I have to have a thick skin about it." When you're working on the deal from hell, it helps to have the hide of an armadillo.
THE PARAMOUNT DEBACLE: WHO LOOKS BAD PARAMOUNT DIRECTORS Delaware court says board was overly passive in allowing CEO Martin Davis to dismiss a QVC bid PARAMOUNT ADVISERS Court says Lazard Fr eres didn't adequately assess QVC's offer; Simpson, Thacher & Bartlett opposed talks SUMNER REDSTONE He and WMS Industries traded in Viacom stock at critical times before and during the takeover battle KEKST & CO. Public-relations firm represented both Paramount and Viacom, even after the interests of the companies diverged DATA: COURT DOCUMENTS, BUSINESS WEEK