Paramount Battle Moves to Legal Arena : QVC Asks Court to Block Merger With Viacom; Traders Wait for Diller

The takeover battle for Paramount Communications Inc. shifted to the legal arena Thursday as QVC Network Inc. asked a Delaware court to block Paramount’s proposed merger with Viacom Inc.

QVC, which is engaged in a proxy fight with Viacom over Paramount, also asked the court for a second time to strike down a so-called lockup agreement between Viacom and Paramount that would award $100 million to Viacom if its merger agreement collapsed.

The requests were contained in an amendment to a lawsuit QVC filed last week. In its latest filing, QVC said Paramount has “consistently refused” to discuss QVC’s proposal, even though Paramount conceded in regulatory filings it had “fiduciary duties” to do so.

“Paramount never once (has) agreed to begin, or even to schedule, discussions with QVC,” QVC’s court documents said. “Nor has Paramount since responded to QVC’s continued requests for a negotiation.”

In the past, both Viacom Chairman Sumner Redstone and Paramount Chairman Martin Davis have said they are firmly committed to protecting their friendly merger. Redstone has said that only a “nuclear attack” could prevent the deal from happening.

On Thursday, Viacom and Paramount each rejected QVC’s latest claims, with Paramount calling them “without substance” and Viacom saying they are “without merit.”

Wall Street traders are still waiting to see if QVC Chief Executive Barry Diller sweetens the cash portion of his bid, valued at roughly $10 billion. Diller so far has raised $2 billion in equity financing from four cable industry partners and another $3 billion in bank financing.

Analysts note that QVC could probably raise its cash component from the current $40-per-share level to about $50 per share without new partners. But QVC may be holding off committing itself, analysts said, until the Delaware court rules on its lawsuit.

For now, Diller appears to be at a disadvantage. The Viacom tender offer, which was launched Monday, is scheduled to expire Nov. 20. QVC’s tender offer, which was launched Wednesday, expires Nov. 22.

QVC has said it may change the terms of its offer. If it does, it can extend its tender another 10 business days. That would return the advantage to QVC since Viacom would probably feel compelled to adjust its offer again, giving back to QVC a valuable lead of one or two days.

A source close to QVC said the company is still mulling its options and will probably not take further action for another 10 days to two weeks. QVC’s tender offer is still undergoing regulatory review by the Justice Department.

The bidding for Paramount started six weeks ago when Viacom agreed to pay $7.4 million for the entertainment conglomerate through a friendly merger. Diller later bested Viacom’s bid, setting the battle stage.