NYNEX aids Viacom's merger bid Battle being waged for Paramount


Adding to his growing war chest, Viacom's chairman, Sumner M. Redstone, announced yesterday that the NYNEX Corp. had agreed to invest $1.2 billion in his entertainment company to give him additional ammunition to increase his $7.4 billion bid for Paramount Communications Inc. -- and possibly top a competing offer from QVC Network Inc.

Although Paramount has technically agreed to merge with Viacom, the deal is in jeopardy as long as QVC, a home-shopping service that would like to get into the motion picture business, has the more attractive offer on the table.

At recent prices, QVC's stock-and-cash deal would be worth $80.14 a share to Paramount's shareholders, while the Viacom package would yield only $62.94 a share. And the cash portion of the QVC bid, at $30 a share, is $20.90 a share more than the cash component in Viacom's offer.

Yesterday's announcement came less than a week after Mr. Redstone lined up a $600 million cash infusion from another deep-pocketed ally, Blockbuster Entertainment Corp., on terms similarly favorable to him.

The alliances indicated just how determined Mr. Redstone is to win Paramount, and a number of people with long experience in the industry said yesterday that the bidding war could get ugly as both sides dig in for a bruising endgame.

For NYNEX, which owns New York Telephone and New England Telephone, the deal is a sign of the growing importance of alliances between programmers such as Viacom and distributors information such as the telephone companies.

Time Warner and U S West entered into just such a partnership in May out of a conviction that such relationships would be vital as consumers want more and more information wired into their homes.

Nonetheless, for NYNEX, it is a big gamble, one that its fellow Baby Bells were apparently not eager to take. Among those rumored to have considered partnerships with Viacom were Southwestern Bell and Bell Atlantic. Now, their only option is a deal with QVC or joining with another suitor.

"As far as telephone companies go, we married NYNEX," Mr. Redstone said yesterday in a conference call with the news media. "We do not believe in bigamy."

From what could be learned yesterday, the NYNEX investment would be identical in structure to last week's deal with Blockbuster. Both are remarkable in that they would give Mr. Redstone control over vast sums of cash and yet allow him to keep much of his authority over the Viacom board.

NYNEX's would be given convertible preferred stock in Viacom in exchange for its cash investment that could be swapped someday for nonvoting Viacom stock at $70 a share. (It currently trades at $53.375.)

NYNEX's chairman, William Ferguson, would be entitled to just one seat on the Viacom board -- exactly what Blockbuster got for an investment half that size.

There are other similarities to the Blockbuster deal. If the deal with Paramount falls through, NYNEX or Viacom each has the right to reduce NYNEX's investment by half. The preferred stock will pay a 5 percent dividend and can be redeemed at the insistence of either party after five years.

While the benefits for Blockbuster and NYNEX might be hard to quantify for a while, the two deals do immediate wonders for Viacom's balance sheet. With an extra $1.8 billion, Viacom can raise the cash portion of its bid for Paramount by about $15 a share, bringing it close to $24.10 a share.

And though Mr. Redstone has steadfastly maintained that he is determined not to load his company with debt, analysts said yesterday that the capital infusion would allow him to borrow enough money certainly to match QVC's bid, or even exceed it, without crippling Viacom.

The QVC camp, headed by Barry Diller, its chief executive and a former Paramount executive, has been waiting to see just what Viacom would do, before going to Paramount's board with all the financial documents the board has requested.

The QVC team could not have been encouraged yesterday by the exuberant reaction from some quarters within Paramount. A clearly pleased Paramount chairman, Martin S. Davis, issued a statement yesterday noting that the latest deal added to the strategic value of the Viacom deal in his view.

From NYNEX's standpoint, the Viacom deal might make sense even if Viacom ultimately loses its quest for Paramount, some analysts say. That is because carriers such as NYNEX are rapidly having their local phone monopolies whittled away by regulators and the marketplace, and are eager for new ways to make profits.

Merely carrying phone calls, or, in the future, information services like stock quotes and traffic reports, will only produce a fraction of the profit that they are used to earning.

Acquiring a stake in an attractive company such as Viacom, however, with well-known brand names such as MTV and distribution rights to reruns of top-rated shows like "Roseanne," will fill NYNEX's ever-expanding distribution pipelines.

"Building more traffic for their networks has got to be NYNEX's top priority, and having MTV helps a great deal," said H. Paris Burstyn, an analyst with Business Research Group, a market research firm in Newton, Mass.

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