PARAMOUNT Harvard Case Solution & Analysis

INTRODUCTION:

The chairman of the board of directors of Viacom, Sumner Redstone was concerned about the acquisition of Paramount Communications Inc.  Viacom offered the per share price of $63 to Paramount Communications Inc. Paramount was unwilling to agree on the price that Viacom was offering and the additional price of the "lock-up" option on 20% of Paramount's shares, along with the termination fee. During the negotiations between Paramount and Viacom’s representatives, rumors repeatedly floated out in the market that QVC was considering to bid for the acquisition of Paramount. Martin Davis, CEO of the Paramount had lunch with QVC’s CEO, Barry Diller and told him that Paramount was not for sale.

Industry:

The three companies namely Paramount, Viacom and QVC were part of the entertainment industry. Entertainment industry was divided into two categories film and television. Films were produced by the production companies and these companies were also distributing these films to their audiences. Firstly, these companies distributed their films to theater owners for the premiere of their films. Theaters were accounted for 30% of the film industry revenue. Secondly, they recorded the films in video cassettes and these cassettes were marketed for rental and sale purposes in the home video market after their several months’ appearance in the theaters and the revenue from this market was accounted for 40% of the film industry revenue. Thirdly, these films were broadcasted on pay cable television stations and revenue generated in this market was accounted for 20% of the films industry revenue. Paramount, Viacom and QVC were also involved in the film and TV production, film library, distribution, exhibition, cable network, cable operator television station and theme parks.

PROBLEM IDENTIFICATION:

Paramount faced a problem and this was a decline in its share price. Paramount made a hostile bid to takeover Time Inc. and Time made an attempt to prevent this takeover through merger. From that point, Paramount wasn’t active in any sort of acquisition.

ANALYSIS:

The case is focused on the analysis of the Paramount’s equity value and per share price. It also includes the comparison of the Terminal value of the competitors and Comparable Multiples with the Synergies Comparables.

Paramount Value:

In the market, Paramount was considered to be a potential takeover for Viacom and QVC. The acquisition of Paramount was feasible for both the companies because from a number of years, paramount was not actively taking part towards expansion and was showing a stagnant growth within the industry. Its CEO had the reputation of being tough with his colleagues, which increased the employee turnover. Redstone was the CEO of Viacom, and was interested in the acquisition of Paramount Communication Inc. because he felt that through acquisition he could create the real synergy among the assets of Viacom and Paramount. These synergies may be attained because of the identical business entities and as these entities were already established in their markets. This combination could also reduce the cost through the combination of similar businesses and economies of scale.

Combining these two entities would create a better-positioned company in the market rather than their stand alone position. The value addition regarding the combination was that both companies wanted to adopt the international business strategies. Paramount and QVC combination was expected to be more diversified than the Paramount and Viacom combination. From this combination the only business entity that would overlap was networks business which both..............

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