Viacom ups studio bid with merger

VIACOM, the US cable-television company fighting for control of the Paramount entertainment group, stunned Wall Street yesterday, engineering a merger that allowed it to raise the cash portion of its bid by dollars 1.4bn.

Viacom, which had desperately sought new financing to respond to a dollars 9.8bn offer by rival QVC Network, signed a definitive merger agreement late yesterday afternoon with Blockbuster Entertainment, the video-rental chain that contributed dollars 600m to its earlier offer. Viacom will acquire the company in an all-share deal that values Blockbuster at dollars 8.4bn; Blockbuster, in return, will more than double its contribution to the Paramount bid to dollars 1.25bn.

The surprise merger, announced one hour before the deadline for Paramount bids, considerably strengthens Viacom's balance sheet, allowing it to raise the cash portion of its offer for control of the Hollywood studio from dollars 5.1bn to dollars 6.5bn, or dollars 105 a share. The new tender offer easily tops the dollars 92 in cash offered by QVC Network for 51 per cent of Paramount, which now has 10 days to respond with a revised bid.

The total value of the two bids, however, remains almost identical, given the changing price of the shares that would be exchanged for the remaining 49 percent of the company. The Viacom chief executive, Sumner Redstone, said his new bid is worth an average of just under dollars 80 a share, about one dollar less than QVC's at current prices. Many analysts doubt QVC will try to match the offer.

The Viacom and Blockbuster merger will go ahead regardless, the companies said. Mr Redstone, who owns 76 per cent of Viacom, will own 61 per cent of the new company, Viacom Blockbuster, and remain chairman.