Paramount Communications, Inc. - 1994
Steven N. Kaplan
University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER)
CASENET, SOUTH-WESTERN COLLEGE PUBLISHING
SUBJECT AREAS: Valuation; mergers and acquisitions.
CASE SETTING: 1994, Entertainment Industry.
This case studies the takeover contest for Paramount Communications between Viacom and QVC. The case begins with Viacom's initial bid for Paramount in September 1993 and continues to the end of the contest between Viacom and QVC in February 1994. Paramount 1994 is a challenging case for MBAs. It has three primary roles.
First, the case illustrates the issues involved in a takeover bidding war. The case documents the bidding tactics of Viacom and QVC and Paramount's responses. Particulalry interesting are:
(a) Viacom s use of a derivative security -- contingent value rights (CVRs);
(b) the interrelationships of the stock prices of Paramount, Viacom, and QVC during the bidding war that an equity trader or risk arbitrageur could have analyzed and acted upon.
Second, the final outcome of the bidding war provides students with an opportunity to calculate the market s estimate of the synergies in the transaction for each bidder and the amount by which each bidder was willing to overpay. This calculation is particularly interesting when used after Paramount 1993 which requires the students to estimate Paramount's value.
Third, and finally, the case provides an ideal vehicle to study the behavior of managers, boards of directors, and courts in the middle of a takeover contest.
While Paramount 1994 can be taught on its own, it is besttaught after the companion case, Paramount 1993. (If an instructor plans to use Paramount 1994 without teaching Paramount 1993, the instructor should assign Paramount 1993 as background reading.)
JEL Classification: G34, L82
Date posted: March 26, 1997