WILMINGTON, Del. -- Unbeknown to shareholders, Paramount Communications Inc. turned down a bid from Viacom Inc. in early July that was in some ways better than the one it accepted in September, a lawyer for a competing bidder said yesterday.
The disclosure was made by Herbert Wachtel of the Wachtel, Lipton, Rosen & Katz law firm, which is representing QVC Network Inc. in its case against Paramount in Delaware Chancery Court. QVC Network is arguing that Paramount illegally spurned its $10.6 billion bid in favor of a less attractive takeover offer from Viacom Inc.
At the chancery court hearing yesterday, QVC's lawyers argued that Paramount had put itself up for sale when it agreed to a deal with Viacom and that its directors had breached their obligations by not considering QVC's offer.
Winning that argument is crucial to QVC, because if the court finds that Paramount was indeed up for sale, Paramount could be obliged to remove anti-takeover provisions and payments that the board had promised the chairman of Viacom, Sumner M. Redstone, if the deal was not completed.
Paramount countered that it was not for sale and that its merger with Viacom simply reflected a long-term strategic alliance that it had been considering for several years.
And Paramount's lawyers added that even if the court found it was up for sale, Paramount's board had been conscientious in considering -- and rejecting -- the QVC offer.
Mr. Wachtel argued that the Paramount-Viacom deal reflected a decision on Paramount's part to be sold.
Mr. Wachtel said that as in the 1985 Revlon case, in which the Delaware Supreme Court ruled that the board had to accept the highest offer,the Paramount-Viacom argument constituted a sale because it would transfer control from Paramount's public shareholders to Viacom, which would end up with 70 percent of the merged companies' votes.
Mr. Wachtel described what he characterized as a series of developments showing that Paramount agreed to a merger with Viacom only after the chairman of Paramount, Martin Davis, learned that QVC might be considering a hostile bid for his company.
Mr. Wachtel said that the Paramount board, according to depositions taken in the case, turned down an offer from Viacom in July of $63 a share that included about $13.50 in cash. That is less than the $9.10 in cash included in the $69.14 per share offer that Paramount accepted in September.
In the interim, however, Mr. Wachtel said, Paramount's Mr. Davis learned in a telephone conversation with John C. Malone, whose company, Liberty Media Corp., is the largest investor in QVC, that QVC chairman Barry Diller, a former employee of Mr. Davis' and his longtime nemesis, was considering a hostile bid for the company.
QVC argued that Paramount only agreed to be sold to Viacom because of fears that Mr. Diller would make a run at Paramount.
Paramount has argued that its initial merger agreement was the result of the company's longtime search for a strategic partner and was not prompted by any other decisions but finding the best merger partner.
Mr. Wachtel also argued that the board had violated its fiduciary responsibilities because it had publicly acknowledged in documents that it had a responsibility to meet with QVC but never did.
QVC said court documents, including a memo from Mr. Redstone to his investment banker, Robert Greenhill of Smith Barney Shearson, indicated that the issues in the discussions between Mr. Redstone and Mr. Davis had been whether Mr. Davis would remain chief executive of the merged company.