Battle for Paramount Taken Into US Court

IN the midst of a major bidding war between rival coalitions of companies, Paramount Communications Inc. is suddenly the hottest entertainment stock in town. The per-share value of Paramount is climbing higher and higher - with no apparent end in sight.

The battle over Paramount is a case study, experts say, of ``shareholder rights'' versus ``manager control.'' The Paramount takeover is expected to help set off an additional round of corporate mergers, as investors scramble to link up with software, film, and entertainment companies prior to the arrival of new multimedia ``information carriers'' within the next decade. These information carriers will be able to deliver a wide array of communication services through television.

Last week a Delaware Chancery Court judge ruled that the board of Paramount Communications Inc. improperly rejected a bid by QVC Network Inc., a cable TV home shopping firm. Paramount's board wants to merge with Viacom Inc., which controls a number of cable television entertainment networks, including MTV and Nickelodeon. Viacom's offer amounts to about $9.6 billion, compared with QVC's offer of around $10.4 billion. Assuming the Chancery Court decision is upheld, Viacom will either have to match or exceed QVC's offer, or allow QVC to go forward in its bid to take over Paramount.

The lower Delaware court was particularly critical of Paramount for not meeting with QVC's board in mid-November, after QVC had raised the value of its proposed takeover package. The lower court ruled that such a failure breached the board's fiduciary relationship to shareholders by not having sought out more information about a merger with QVC and, in effect, by locking QVC out of the merger process.

PARAMOUNT is appealing the Chancery decision and is expected to go before the state's highest court, and perhaps all the way to the United States Supreme Court.

Paramount has long been considered an important money-earner within the entertainment industry. Most major US film companies are now owned or controlled by overseas firms, particularly ones from Japan, Britain, and Australia.

Paramount and the Walt Disney Company are the last two major independent studios in Hollywood. Both are large, diversified, and rich. Paramount, in addition to owning publishing houses, owns the New York Knicks basketball team and the New York Rangers hockey team. The company's film division has several current or prospective hit films scheduled for the holiday season. Paramount is also in television broadcasting and cable.

Late last week, following the Delaware decision, Paramount's stock shot up more than $3 a share, to the $80 range. ``The end is nowhere in sight,'' one analyst says.

The battle over Paramount is a clash not just of companies, but strong-willed individuals. Paramount Chairman Martin Davis has wanted to merge his company with Viacom, which is controlled by Boston investor Sumner Redstone. QVC is headed up by long-time Hollywood insider Barry Diller, a former studio chief of the film division of Paramount Communications.

Viacom's total compensation package, which would be paid to shareholders, is currently valued at around $85 a share. But QVC's compensation package is valued at around $90 a share.

Assuming that Paramount is finally part of a merger agreement with either QVC or Viacom or a third party yet to appear, the bidding for Paramount increases pressure on Disney, which is the last major merger holdout.

One investment house analyst, who follows Disney, says Disney is now well-positioned for a strong cash flow from its film operations, with the release of its ``Aladdin'' video in the US and a ``Beauty and the Beast'' video overseas. The company is also planning to release two new animated carton films in 1994.

Currently there are rumors that Matsushita and Sony, which control MCA Inc. and Columbia Pictures respectively, will sell all or part of their operations to prospective US cable companies.