Paramount 1994
PARAMOUNT 1994
CASES IN CORPORATE FINANCE
July 12, 2013
Board of Directors
Paramount
Re: Acquisition
Dear Board of Directors:
In order to make our recommendation to the Board, we must address the following questions:
Acquiring Paramount Communications, Inc (PCI) was important for Redstone as it would enable Viacom to obtain a stronger position in the communications industry. His initial offer was designed to show that Viacom was a better strategic partner for PCI than QVC. The deal was more in favor of Viacom than Paramount as Viacom‘s initial offer was a combined offer of cash and securities. Under the terms of the initial offer, Paramount shareholders would receive voting and nonvoting stock of Viacom. However, control of Viacom would remain vested in the existing controlling shareholders of Viacom. The offer also contained various defensive provisions like the $100 million termination fee and the lock up option which were designed to deter Paramount and/or its shareholders from seeking or accepting any competing offers. The market (financial analysts and traders) was skeptical because of the value ($69.14/share) of the stock portion of this offer as well as the fact that it included other restricting conditions on PCI including the hefty termination fee.
Paramount’s inaction in regards to QVC’s bid led the company to file an action in the Delaware Chancery Court forbidding the proposed merger between Viacom and PCI, specifically the company wanted to invalidate Viacom’s option to purchase 23.7 million PCI shares and prohibit PCI from using its stockholder’s rights plan or the “poison pill” to oppose the QVC bid offer. In response to QVC’s tactics, Viacom increased the value of the merger.
Paramount 's board was protecting management, specifically Martin Davis, from the hostile takeover before the Delaware Court decision. By not considering the higher QVC bid the board wasn 't upholding their fiduciary
CASES IN CORPORATE FINANCE
July 12, 2013
Board of Directors
Paramount
Re: Acquisition
Dear Board of Directors:
In order to make our recommendation to the Board, we must address the following questions:
Acquiring Paramount Communications, Inc (PCI) was important for Redstone as it would enable Viacom to obtain a stronger position in the communications industry. His initial offer was designed to show that Viacom was a better strategic partner for PCI than QVC. The deal was more in favor of Viacom than Paramount as Viacom‘s initial offer was a combined offer of cash and securities. Under the terms of the initial offer, Paramount shareholders would receive voting and nonvoting stock of Viacom. However, control of Viacom would remain vested in the existing controlling shareholders of Viacom. The offer also contained various defensive provisions like the $100 million termination fee and the lock up option which were designed to deter Paramount and/or its shareholders from seeking or accepting any competing offers. The market (financial analysts and traders) was skeptical because of the value ($69.14/share) of the stock portion of this offer as well as the fact that it included other restricting conditions on PCI including the hefty termination fee.
Paramount’s inaction in regards to QVC’s bid led the company to file an action in the Delaware Chancery Court forbidding the proposed merger between Viacom and PCI, specifically the company wanted to invalidate Viacom’s option to purchase 23.7 million PCI shares and prohibit PCI from using its stockholder’s rights plan or the “poison pill” to oppose the QVC bid offer. In response to QVC’s tactics, Viacom increased the value of the merger.
Paramount 's board was protecting management, specifically Martin Davis, from the hostile takeover before the Delaware Court decision. By not considering the higher QVC bid the board wasn 't upholding their fiduciary