The shock of Redstone’s apparent coup didn’t last long. Certainly, the Blockbuster deal was impressive. Almost overnight, it would create one of the world’s most powerful media and entertainment conglomerates, with holdings ranging from some 3,600 video stores to the Nickelodeon and Showtime cable channels. But when traders worked the new numbers on Paramount, they came away shaking their heads. To defeat a rival bid from Barry Diller, chief of the QVC home-shopping network, the 70-year-old Redstone was offering $105 a share for the venerable company–in cash. That looked better than Diller’s 892. But with the stock portion of the deal factored in, the actual “blended” offer was closer to $79. Even insiders were desperate eleventh-hour gambit to stave off confused. Some saw Redstone’s gambit as a defeat. Others suspected he was merely slipping a legal deadline–under Paramount’s auction rules, Redstone had to counter Diller by 5 p.m. Friday–before moving decisively later this week or next. Either way, everyone agreed: the battle for Paramount is far from over.
If there is a clear winner, it may be Blockbuster Entertainment. Just six years ago the Florida company owned fewer than 20 stores: now it is the leading home-video retailer in the world, bigger than all its competitors combined. Over the last year it has aggressively diversified into music and entertainment. The nation’s third largest music retailer, it boasts holdings in everything from the massive Spelling Entertainment TV libraries to a growing chain of kids’ indoor-play centers. Tying up with Viacom represents another quantum step. Viacom can plug into Blockbuster’s huge retail network to distribute its own products: Blockbuster can use Viacom’s established cable system to air its film libraries. That’s just for starters. If Viacom wins Paramount, it will have spawned a media behemoth with assets of $26 billion and yearly revenues of $9 billion. “This is the biggest deal in the history of Wall Street,” enthused Wayne Huizenga, Blockbuster’s harddriving chairman, with just a tad of hyperbole. The new company would be “larger than Disney, larger than Turner Broadcasting, larger than Time-Warner.”
The battle for Paramount began in September, when Viacom offered around $69 a share for the company–amounting to a bid worth some $8 billion. Since then the epic and often chaotic duel has drawn in some of the most powerful players in media. Cox Enterprises. Comcast and BellSouth backed Diller. Nynex and Blockbuster sided with Redstone. With last week’s merger, Blockbuster doubled an earlier $600 million investment in Viacom–bankrolling Viacom’s renewed onslaught on Paramount. But getting to that point was tough. The talks were “hellishly complicated,” according to on They began in earnest last summer. even before the first Par amount offer, and ended barely an hour before Friday’s deadline.
As the clock ticked, the partners-to-be haggled furiously. “We worked all night,” said an exhausted Redstone late that afternoon. “We were in one room at Shearman & Sterling,” the New York lawyers. “They were in another over at the Ritz.” Phone calls squawked between them throughout the night and following day. The final agreement wasn’t nailed down until 2 p.m., and it was 90 minutes later when Redstone and Huizenga formally signed. As word of the merger burst on the Street like a thunderclap, the two men got down to the really rough work-selling the Paramount offer–to investors. ln a 40-minute conference call with two dozen key shareholders, from New York to Los Angeles, Redstone and Huizenga outlined the deal. At first there was excitement, then mounting skepticism as the experts homed in with tough questions. Viacom was offering $105 per share in cash for 50.1 percent of Paramount’s shares. But clearly: the combined bid was, at face value, indeed lower than Diller’s.
Redstone and his team went on to explain the dynamics of a Paramount-Viacom-Blockbuster merger. He would be chairman, Huizenga vice chairman. Someone asked about Paramount chieftain Martin Davis. “There may be a role for him, said Red stone guardedly. “I had a nice chat with him this morning.” The Blockbuster merger would go through even without Paramount, Redstone confirmed. Frank Biondi, Viacom’s chief executive, would fill that spot in the new company; Huizenga would run Blockbuster pretty much as he sees fit. The conference ended inconclusively. “This is not a winning bid,” pronounced stock analyst Jessica Reif at Oppenheimer Co. Consulting with others who had listened in, a trader at Wyser-Pratte rendered a more pungent verdict: “It’s a crock of manure.”
As Redstone teleconferenced with Wall Street, Barry Diller hung out in New York, waiting. The phone rang just as the market closed. “Interesting,” he said noncommittally, learning of Redstone’s offer. Brian Roberts, president of Comcast in Philadelphia and one of Diller’s closest allies in the Paramount fight, was less composed: “That’s it,” he said. “We’re out.” But within minutes both men were back on the line. After crunching the numbers Roberts was convinced QVC remained on top. Diller dismissed Viacom’s offer as hollow, “a cynical shell game” that merely moved money from the stock portion of the offer to the up-front-cash end of it. “The bids are in,” he told NEWSWEEK, and for now he sees no need to change his. “Let the shareholders decide.”
Oddly, for a man still apparently the underdog, Sumner Redstone says the same. Cash is king, he told NEWSWEEK moments after the deal closed. Why? Because it’s impossible to value the competing offers any other way. Neither company’s stock any longer reflects its intrinsic value, he argues. Anticipating one or the other’s victory traders almost randomly drive prices this way and that, changing the worth of the competing bids. In this arbitrary and chaotic arena, the only constant is cash. As Redstone sees it, his offer is $13 a share better, loud and clear.
This week all eves will be on the two rivals’ stocks. Viacom may slip in price, eroding the value of its offer. But if it doesn’t, and QVC’s shares fall instead, then Diller might be forced to bid higher. Indeed. that could be part of Redstone’s strategy. As Diller’s chances of winning improve, his stock–and his overall offer for Paramount–weakens. (Traders think that stock in the winning company, saddled with new debts and the inevitable difficulties of merging two companies, will be worth less.) That could open the field for Redstone. As the next deadline approaches, on Jan. 21, he may speed in with a last “killer bid.” Investors would tender to him as the clock ticks down and, voila: Sumner Redstone, proudly atop Paramount. Could it happen? For every scenario, there is another. Both sides anticipate more feints and counterfeints before the duel is done. Both Huizenga and a top Viacom adviser last week hazarded a guess as to when: mid-February.
Paramount has dominated headlines, but last week’s real milestone may be the merger. It’s easy to talk about Viacom-Block-buster Inc.’s combined financial clout or the obvious (but often overrated) “synergies” that might emerge. Yet the biggest attraction is something less tangible: the potential of what the pair can do, together, in an industry that is wholly reinventing itself. The Information Highway is upon us. Everywhere, major media companies are teaming up-phone companies with cable networks, software developers with hardware manufacturers, entertainment “providers” with entertainment “distributors”–to create new businesses.
There will be bumps in melding the two organizations. Yet Viacom-Blockbuster will be largely free of the debt that afflicts such mergers as Time-Warner. More important, both are formidable innovators in the emerging Info Age. Tailoring its message to a new medium, Viacom has consistently come up with imaginative new programming, from “Beavis and Butthead” to “Nick at Nite.” Blockbuster’s record is no less impressive. Wayne Huizenga, the erstwhile waste-management mogul, invented the modern home-video store. Now, at the dawning interactive age (that golden era traversed by the Information Highway), he has games, videos and libraries to send out over the networks.
QVC, too, has enormous promise. But lots of competitors are readying for a push into home shopping. Fairly or not, skeptics often describe QVC as a one-man show, whose fortunes ride almost entirely on the famous “Barry sizzle.” Diller worked magic at Paramount and later at Fox, where he created a fourth network. Even so, the Viacom folks believe they offer more. “We have two companies with terrific assets,” says Huizenga. “QVC has its home-shopping channel. As far as I’m concerned, it’s an open-and-shut case.” We’ll see. As they well know, that’s for Paramount’s shareholders to decide.
The merger of Viacom and Blockbuster would create a $3 billion entertainment giant. Here’s a sample of their holdings, which range from cable systems to “The Beverly Hillbillies” and MTV:
CABLE: Viacom’s networks include MTV (“Beavis & Butt-head”), VH1, Nickelodeon (“Ren & Stimpy”), Showtime and The Movie Channel. The company also operates cable systems.
BROADCAST. Owns five TV stations and 14 radio stations.
OTHER: Through its National Amusements division, Viacom owns movie theaters that operate 800 screens. It also runs one of the richest syndication libraries. The programs include “The Cosby Show,” “I Love Lucy,” “Roseanne” and “The Twilight Zone:'
RETAIL: The world’s largest home-video retailer operates 3,600 stores in the U.S. and overseas. Blockbuster also runs another 500 music outlets.
TV/FILM: Owns stakes in Spelling Entertainment and Republic Pictures. Their lineup includes: “Melrose Place:’ “Dallas,” “High Noon,” “Rambo” and John Wayne films.
OTHER: The company owns 20 percent of the Discovery Zone, a children’s indoor-recreation chain; it has an option to buy a majority stake.
