Question 3 Davis had an incentive to favor the Viacom bid over QVC because Redstone would allow Davis to keep his job. However, Diller of QVC was most likely going to fire Davis and take over Paramount and begin divesting non-core assets. For some reason, the board also seemed to favor the Viacom bid by giving Viacom the questionable termination option to purchase 19.75% of its shares at the purchase price, thereby allowing Viacom to block every other bidder. However, the board also decided to consider QVC’s offer even though Davis reminded them of the termination option (perhaps to not look egregious, especially since a lawsuit was coming up which could turn up negligence and bias in favoring acquirers). In addition to the crazy termination option awarded to Viacom, Paramount’s poison pill to block QVC was another bias. Perhaps the majority of the board were friends with Davis and wanted him to keep his job. The auction procedure seemed much more fair (probably because it came after the court ruled
out a lot of the decisions Paramount made that favored Viacom). Allowing the bidders until February 1st to continue submitting bids was also a shareholder friendly move. Question 4 The equity securities of Paramount, Viacom (A and B), and QVC all dramatically changed from September to the end of January. For Paramount, the stock price climbed from $52.00 to the final consideration of ~ $80.00 during this entire period, as is typical in merger situations. For
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- Spring '11
- Valuation, Viacom