Paramount Communications Inc.–1993
Steven N. Kaplan University Of Chicago
t the end of August 1993, Sumner Redstone, Chairman of the Board of Directors of Viacom, sat back and wondered what to do about Paramount Communications. He had been pursuing the acquisition of Paramount for some time but seemed to have reached a road block. Beginning in 1989, Redstone and Martin S. Davis, Chairman of the Board and Chief Executive Officer of Paramount, had held informal discussions from time to time concerning the possibility of a business combination. Those discussions took a much more serious turn in April, 1993, when Davis and Redstone sat down to dinner and began to discuss possible terms for a Viacom-Paramount merger. Such a combination had the potential to create one of the world’s largest entertainment conglomerates with significant market shares in cable TV, movies, film distribution, publishing, and sports. More importantly from Redstone’s perspective, Viacom-Paramount would have the ability to create, acquire and produce programming that it could drive to every region on earth. At dinner, the two were able to agree that Davis would be CEO of the combined company and that Redstone would remain the chairman and controlling shareholder. They were unable, however, to agree on a price or terms. During the week of June 28, Viacom’s representatives expressed a willingness to negotiate a transaction based upon a price to Paramount’s stockholders of $63 per share. Viacom conditioned its proposal upon Paramount’s willingness a) to grant Viacom an option to acquire from Paramount shares representing up to 20% of Paramount’s outstanding shares, at an exercise price of the then current market price of Paramount’s Common Stock if the transaction did not close; and b) to pay Viacom a termination fee of $150 million plus expenses, again, if the transaction did not close. The discussions terminated on August 25, 1993. The Paramount representatives were unwilling to agree to the price Viacom was offering, to the “lock-up” option on 20% of Paramount’s stock, and to the termination fee. While Paramount and Viacom talked, rumors repeatedly surfaced that QVC was also considering making a bid for Paramount. In an attempt to deter such a bid, Davis had lunch with Barry Diller, QVC’s CEO, in July, and told Diller that Paramount was not for sale. This case was prepared from public sources with the assistance of Ramesh Balasubramanian to serve as the basis for class discussion rather than to demonstrate the effective or ineffective handling of an administrative situation. Copyright © 1995 by Steven N. Kaplan. Published by South-Western College Publishing. ISBN 0-538-85823-0. For information regarding this and other CaseNet® cases, please visit CaseNet® on the World Wide Web at casenet.thomson.com. CaseNet® is a registered service mark used herein under license.
CaseNet® Paramount Communications Inc.–1993
©South-Western College Publishing ISBN 0-538-85823-0
A DESCRIPTION OF THE ENTERTAINMENT INDUSTRY
Paramount, Viacom, and, QVC operated in the entertainment industry. The entertainment industry could be divided into two major areas: film and television.1
Films are produced by film production companies. The six largest film producers, known as the “Majors”, were Columbia/TriStar (owned by Sony Corp.), Twentieth Century Fox (owned by News Corp.), Universal (owned by MCA and its parent Matsushita), Paramount, Warner Brothers (owned by Time Warner), and Walt Disney. The majors not only produced their own films, they also financed and, then distributed those films, largely to three audiences. The distributor arranged to have a film exhibited in the following sequence. First, the distributor arranged with theater owners to exhibit the film in movie theaters. The exhibitors and distributors negotitated an appropriate division of the revenues from any particular film. The trend in...