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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 21
TO
SCHEDULE 14D-9
(WITH RESPECT TO THE TENDER OFFER BY QVC NETWORK, INC.)
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SOLICITATION/RECOMMENDATION STATEMENT
PURSUANT TO SECTION 14(D)(4)
OF THE SECURITIES EXCHANGE ACT OF 1934
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PARAMOUNT COMMUNICATIONS INC.
(NAME OF SUBJECT COMPANY)
PARAMOUNT COMMUNICATIONS INC.
(NAME OF PERSON FILING STATEMENT)
COMMON STOCK, PAR VALUE $1.00 PER SHARE
INCLUDING THE ASSOCIATED COMMON STOCK PURCHASE RIGHTS
(TITLE OF CLASS OF SECURITIES)
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699216 10 7
(CUSIP NUMBER OF CLASS OF SECURITIES)
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DONALD ORESMAN, ESQ.
PARAMOUNT COMMUNICATIONS INC.
15 COLUMBUS CIRCLE
NEW YORK, NEW YORK 10023-7780
(212) 373-8000
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON AUTHORIZED
TO RECEIVE NOTICES AND COMMUNICATIONS ON BEHALF
OF THE PERSON FILING STATEMENT)
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COPY TO:
JOEL S. HOFFMAN, ESQ.
SIMPSON THACHER & BARTLETT
425 LEXINGTON AVENUE
NEW YORK, NEW YORK 10017
(212) 455-2000
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This Amendment No. 21 supplements and amends to the extent indicated herein
the Solicitation/Recommendation Statement on Schedule 14D-9 of Paramount
Communications Inc., filed with the Securities and Exchange Commission on
November 8, 1993 (as supplemented and amended through the date hereof, the
"Schedule 14D-9"), with respect to the Revised QVC Offer (as described therein,
which Revised QVC Offer shall be referred to herein as the "Current QVC Offer";
the Revised QVC Second-Step Merger shall be referred to herein as the "Current
QVC Second-Step Merger"). Capitalized terms used herein and not otherwise
defined herein have the meanings ascribed to such terms in the Schedule 14D-9.
ITEM 3. IDENTITY AND BACKGROUND
The response to Item 3(b) is hereby supplemented and amended as follows:
On January 11, 1994, QVC's attorneys delivered a letter to the
Paramount Board alleging that the Revised Viacom Offer (as defined below in
Item 7) violated the Bidding Procedures, a copy of which letter is filed as
Exhibit No. 65 to the Schedule 14D-9 and is incorporated herein by
reference.
On January 12, 1994, Viacom's attorneys delivered a letter to the
Paramount Board in response to QVC's allegations, a copy of which letter is
filed as Exhibit No. 66 to the Schedule 14D-9 and is incorporated herein by
reference.
On January 13, 1994, Paramount delivered a letter to QVC's attorneys
with respect to QVC's allegations, a copy of which letter is filed as
Exhibit No. 67 to the Schedule 14D-9 and is incorporated herein by
reference.
On January 12, 1994, Paramount issued a press release with respect to,
among other things, the Bidding Procedures, a copy of which press release
is filed as Exhibit No. 68 to the Schedule 14D-9 and is incorporated herein
by reference.
On January 13, 1994, Paramount's attorneys delivered a letter to QVC's
attorneys and Viacom's attorneys proposing certain clarifying amendments
and refinements to the Bidding Procedures that principally relate to
ensuring that bids are not submitted subsequent to February 1, 1994. A copy
of the letter from Paramount's attorneys is filed as Exhibit No. 69 to the
Schedule 14D-9 and is incorporated herein by reference.
ITEM 4. THE SOLICITATION OR RECOMMENDATION
The responses to Items 4(a) and 4(b) are hereby supplemented and amended as
follows:
(a) At a meeting of the Paramount Board held on January 12, 1994, the
Paramount Board reviewed and considered the terms of a revised acquisition
proposal (which proposal set forth the terms of the Revised Viacom Offer
and the Revised Viacom Second-Step Merger (each as defined below in Item
7)) submitted by Viacom pursuant to the Bidding Procedures established by
the Paramount Board and its representatives. The Paramount Board
unanimously (i) recommended that stockholders reject the Revised Viacom
Offer and not tender any of their Shares pursuant to the Revised Viacom
Offer and (ii) reaffirmed (A) its determination that the Current QVC Offer
and the Current QVC Second-Step Merger, taken together, are fair to and in
the best interests of Paramount's stockholders and (B) its recommendation
that holders of Shares tender such Shares pursuant to the Current QVC
Offer.
Paramount's press release and letter to stockholders with respect to
the Paramount Board's positions are filed as Exhibit Nos. 68 and 70,
respectively, to the Schedule 14D-9 and are incorporated herein by
reference.
(b) At its January 12 meeting, the Paramount Board reviewed and
considered presentations from the Paramount Board's legal and financial
advisors with respect to the Revised Viacom Offer
<PAGE>
and Revised Viacom Second-Step Merger, as well as the Current QVC Offer and
Current QVC Second-Step Merger.
In making the determinations and recommendations set forth in
paragraph (a) above, the Paramount Board gave consideration to a number of
factors, including, without limitation, the following:
(i) The presentation by Lazard to the Paramount Board and its
written opinion dated January 12, 1994 stating that as of such date the
aggregate consideration payable to Paramount stockholders in the Current
QVC Offer and the Current QVC Second-Step Merger, taken together, (A) is
fair to Paramount stockholders from a financial point of view and (B) is
superior from a financial point of view to the aggregate consideration
payable to Paramount stockholders in the Revised Viacom Offer and the
Revised Viacom Second-Step Merger, taken together. A copy of Lazard's
opinion, which includes the matters considered, the assumptions made and
the limits of review, is attached hereto as Annex A, is filed as Exhibit
No. 71 to the Schedule 14D-9 and is incorporated herein by reference.
The discussion herein of Lazard's opinion is qualified in its entirety
by reference to the full text of such opinion. Stockholders are urged to
read such opinion in its entirety.
(ii) The Paramount Board's determination, taking into account
Lazard's presentation and written opinion, that, although the per Share
cash consideration offered in the Revised Viacom Offer is higher than
that offered in the Current QVC Offer, the aggregate consideration
offered in the Current QVC Offer and the Current QVC Second-Step Merger,
taken together, represents the best value available under the
circumstances to Paramount stockholders.
(iii) The terms and provisions of the QVC Merger Agreement,
including the following:
(A) The Bidding Procedures incorporated in the QVC Merger
Agreement (and in Viacom's Exemption Agreement) that enable the
Paramount Board and Paramount stockholders to consider any better
offers for Paramount that may develop for a reasonable period
following the Paramount Board's reaffirmation of its recommendation
that holders of Shares tender such Shares pursuant to the Current QVC
Offer. These procedures are designed to remove the coercive element
from any offer by QVC or Viacom and to provide stockholders with a
meaningful choice between a tender offer from QVC or Viacom.
(B) Paramount's right to terminate the QVC Merger Agreement in
order to accept a transaction that offers better value.
(C) The absence of any stock option, asset lock-up, termination
fee, expense reimbursements or other provisions that could deter a
higher offer for Paramount.
(iv) The conditions to the Current QVC Offer and the Paramount
Board's determination that all such conditions have been satisfied or
can reasonably be expected to be satisfied by the expiration date of the
Current QVC Offer.
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES
The response to Item 6(b) is hereby amended and restated to read in its
entirety as follows:
(b) To the best knowledge of Paramount, (i) none of its executive
officers, directors, affiliates and subsidiaries has determined whether
such person presently intends to tender Shares to QVC pursuant to the
Current QVC Offer, and (ii) none of its executive officers, directors,
affiliates or subsidiaries has determined whether such person presently
intends to sell any Shares which are owned beneficially or held of record
by such person; provided that executive officers obtaining Shares upon the
exercise subsequent to the commencement of the original QVC Offer or the
2
<PAGE>
original Viacom Offer of stock options presently intend to sell Shares
issued upon exercise of such options in the open market. The foregoing does
not include any Shares over which, or with respect to which, any such
executive officer, director, affiliate or subsidiary acts in a fiduciary or
representative capacity or is subject to instructions from a third party
with respect to such tender.
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY
The responses to Items 7(a) and 7(b) are hereby supplemented and amended as
follows:
(a) On January 7, 1994, Viacom revised the terms of its acquisition
proposal for Paramount to provide for, among other things, (i) the
amendment of the Viacom Offer (as so amended, the "Revised Viacom Offer"),
which offer had provided for the purchase of approximately 51% of the
outstanding Shares at a price of $85 per Share, to (A) decrease the number
of Shares to be purchased to 50.1% of the outstanding Shares plus the
Shares issuable upon the exercise of the then exercisable stock options, as
of the expiration of the offer, (B) increase the purchase price offered for
such Shares to $105 per Share and (C) amend certain conditions of the
Viacom Offer as set forth in Viacom's Second Supplement to the Offer to
Purchase dated January 7, 1994 and (ii) the amendment of the terms of the
Viacom Second-Step Merger (as so amended, the "Revised Viacom Second-Step
Merger"), which terms had provided for the exchange of (1) 0.20408 shares
of Viacom Class A Common Stock, (2) 1.08317 shares of Viacom Class B Common
Stock and (3) 0.30408 shares of Viacom Merger Preferred Stock for each
remaining Share and which now provide for the exchange of (x) 0.93065
shares of Viacom Class B Common Stock and (y) 0.30408 shares of Viacom
Merger Preferred Stock for each remaining Share.
After receipt of the Revised Viacom Offer, Paramount's advisors held
discussions with QVC and Viacom.
Except as described above or in Items 3(b) or 4, Paramount does not
presently intend to undertake any negotiation in response to the Current
QVC Offer which relates to or would result in: (i) an extraordinary
transaction, such as a merger or reorganization, involving Paramount or any
subsidiary of Paramount; (ii) a purchase, sale or transfer of a material
amount of assets by Paramount or any subsidiary of Paramount; (iii) a
tender offer or other acquisition of securities by Paramount; or (iv) any
material change in the present capitalization or dividend policy of
Paramount.
(b) The information set forth in Item 3 of this Amendment No. 21 is
incorporated herein by reference.
Except as described above or in Items 3(b) or 4, there are no
transactions, board resolutions, agreements in principle or signed
contracts in response to the Current QVC Offer which relate to or would
result in one or more of the matters referred to in Item 7(a).
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ITEM 9. MATERIAL TO BE FILED AS EXHIBITS
The response to Item 9 is hereby supplemented and amended to add the
following:
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Exhibit 65 --Letter from Wachtell, Lipton, Rosen & Katz to the Paramount Board dated January 11,
1994.
Exhibit 66 --Letter from Shearman & Sterling to the Paramount Board dated January 12, 1994.
Exhibit 67 --Letter from Paramount to Wachtell, Lipton, Rosen & Katz dated January 13, 1994.
Exhibit 68 --Press Release issued by Paramount on January 12, 1994.
Exhibit 69 --Letter from Simpson Thacher & Bartlett to Shearman & Sterling and Wachtell, Lipton,
Rosen & Katz dated January 13, 1994.
Exhibit 70 --Letter to Stockholders of Paramount dated January 13, 1994 with respect to the Current
QVC Offer and the Revised Viacom Offer.
Exhibit 71 --Opinion of Lazard dated January 12, 1994.
</TABLE>
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<PAGE>
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this Statement is true, complete and
correct.
PARAMOUNT COMMUNICATIONS INC.
By DONALD ORESMAN
...................................
Name: Donald Oresman
Title: Executive Vice President
Dated: January 13, 1994
5
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ANNEX A
Lazard Freres & Co.
One Rockefeller Plaza
New York, N.Y. 10020
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Telephone (212) 632-6000
Facsimile (212) 632-6060
January 12, 1994
The Board of Directors
Paramount Communications Inc.
15 Columbus Circle
New York, NY 10023-7780
Dear Members of the Board:
We refer to our written opinions to you set forth in the
letter, dated December 21, 1993 (the "December 21, 1993 Letter").
You have requested our opinion, as of this date, as to whether the
QVC Transaction Consideration (as defined below) is superior from a
financial point of view to the Viacom Transaction Consideration (as
defined in the December 21, 1993 Letter), as amended by Viacom on
January 7, 1994 pursuant to the Viacom Proposal (as defined below).
As stated in the December 21, 1993 Letter, we understand
that the proposed acquisition by QVC Network, Inc. ("QVC") of all
of the outstanding shares of common stock (the "Common Stock") of
Paramount Communications Inc. ("Paramount") by means of a cash
tender offer (the "QVC Offer") by QVC, followed by a proposed
second-step merger of Paramount and QVC (the "QVC Second-Step
Merger"; collectively with the QVC Offer, the "QVC Two-Step
Transaction") is to be effected pursuant to the Agreement and Plan
of Merger, dated as of December 22, 1993, between QVC and Paramount
(the "QVC Merger Agreement"), whereby (i) QVC is offering to
purchase 61,607,894 shares of Common Stock, or such greater number
as equals 50.1% of the outstanding shares of Common Stock, at a
purchase price of $92.00 per share in cash, and (ii) following
completion of the QVC Offer, Paramount would be merged into QVC in
the QVC Second-Step Merger, and each share of Common Stock not
purchased in the QVC Offer (other than shares of Common Stock held
in the treasury of Paramount or owned by Paramount or any direct or
indirect wholly-owned subsidiary of Paramount or QVC) would be
converted into the right to receive (a) 1.43 shares of common stock
of QVC (the "QVC Common Stock"), (b) 0.32 shares of a new series 6%
cumulative non-convertible exchangeable preferred stock of QVC (the
"QVC Merger Preferred Stock") and (c) 0.32 warrants to purchase one
share of QVC Common Stock at a price of $70.34 per share,
exercisable at any time by the holder prior to the tenth
anniversary of the QVC Second-Step Merger (the "Warrants") (the
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aggregate consideration payable to holders of Common Stock (the
"Stockholders") pursuant to the QVC Offer set forth in clause (i)
and the aggregate consideration payable to Stockholders pursuant to
the QVC Second-Step Merger set forth in subclauses (a), (b) and (c)
of clause (ii) is collectively referred to as the "QVC Transaction
Consideration"). We also understand that the QVC Merger Agreement
provides that the QVC Merger Preferred Stock will pay cumulative
quarterly dividends at a rate of $3.00 per annum per share, will
have a liquidation preference of $50.00 per share, will be
redeemable for cash by QVC at declining redemption premiums on and
after the fifth anniversary of the QVC Second-Step Merger and will
be exchangeable by QVC into QVC's 6% subordinated debentures (the
"QVC Debentures") at an exchange rate of $50.00 principal amount of
QVC Debenture per share of QVC Merger Preferred Stock on and after
the third anniversary of the QVC Second-Step Merger. In addition,
we understand that the Warrants will be exercisable with cash or by
using an equivalent amount of liquidation preference of QVC Merger
Preferred Stock or principal amount of QVC Debentures and will be
redeemable for chase by QVC, at its option, at $15.00 per Warrant
on and after the fifth anniversary of the QVC Second-Step Merger.
In addition, we understand that, as set forth in (i) the
written proposal submitted to Paramount by Viacom on January 7,
1994 and (ii) Amendment Number 20 to the Tender Offer Statement on
Schedule 14D-1 filed by Viacom Inc. ("Viacom"), National
Amusements, Inc., Mr. Sumner M. Redstone and Blockbuster
Entertainment Corporation ("Blockbuster") with the Securities and
Exchange Commission on January 7, 1994, including the Agreement and
Plan of Merger, dated as of January 7, 1994 (the "Blockbuster
Merger Agreement"), between Blockbuster and Viacom and the
Subscription Agreement (the "Blockbuster Subscription Agreement"),
dated January 7, 1994, between Viacom and Blockbuster (the "Viacom
Tender Offer Statement") (collectively, the "Viacom Proposal"),
Viacom amended the terms of the cash tender offer (the "Viacom
Offer") that it had commenced on October 25, 1993. Under the
Viacom Proposal, (a) Viacom is offering in the Viacom Offer to
purchase 61,607,894 shares of Common Stock, or such greater number
as equals 50.1% of the outstanding shares of Common Stock, at a
purchase price of $105.00 per share in cash, and (b) following
completion of the Viacom Offer, in accordance with the form of
Agreement and Plan of Merger, between Viacom and Paramount (the
"Form Viacom Merger Agreement") that is attached to the Exemption
Agreement, dated December 22, 1993, between Viacom and Paramount
(the "Viacom Exemption Agreement"), Paramount would be merged into
Viacom in the proposed second-step merger between Viacom and
Paramount (the "Viacom Second-Step Merger"; collectively with the
Viacom Offer, the "Viacom Two-Step Transaction"), and each share of
Common Stock not purchased in the Viacom Offer (other than shares
of Common Stock held in the treasury of Paramount or owned by
Paramount or any direct or indirect wholly-owned subsidiary of
Paramount or Viacom) would be converted into the right to receive
(1) 0.93065 shares of Class B common stock of Viacom (the "Viacom
Class B Common Stock") and (2) 0.30408 shares of a new series of
Viacom cumulative convertible exchangeable preferred stock (the
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"Viacom Merger Preferred Stock") (the aggregate consideration
payable to Stockholders pursuant to the Viacom Offer set forth in
clause (a) and the aggregate consideration payable to Stockholders
pursuant to the Viacom Second-Step Merger set forth in subclauses
(1) and (2) of clause (b) is collectively referred to as the
"Amended Viacom Transaction Consideration").
Lazard Freres & Co. has from time to time acted as financial
advisor to Paramount and has acted as its financial advisor in
connection with proposed Viacom Two-Step Transaction and proposed
QVC Two-Step Transaction. As you know, a General Partner of our
firm is a member of Paramount's Board of Directors. In addition,
we have from time to time in the past provided, and we are
currently providing, in matters unrelated to Paramount, financial
advisory or financing services to one or more of the respective
equity investors in Viacom and QVC, or persons engaged in pending
transactions with one or more of such investors, and we have
received, or expect to receive, fees for the rendering of such
services. In connection with our opinions set forth in this
letter, we have, among other things:
(i) reviewed the terms and conditions of (a) the written
proposal submitted by QVC on December 20, 1993, Amendment Number 21
to the Tender Offer Statement Schedule 14-D1 filed by QVC on
December 23, 1993, and the QVC Merger Agreement (including the form
Exemption Agreement between QVC and Paramount attached thereto) and
(b) the Viacom Proposal, the Viacom Tender Offer Statement and the
Viacom Exemption Agreement (including the Form Viacom Merger
Agreement attached thereto);
(ii) reviewed the terms and conditions of the Blockbuster
Merger Agreement and the Blockbuster Subscription Agreement and
analyzed the Viacom Proposal both with and without giving effect to
the consummation of the proposed merger between Viacom and
Blockbuster contemplated by the Blockbuster Merger Agreement;
(iii) analyzed certain historical business and financial
information relating to Paramount, Viacom, QVC and Blockbuster,
including (a) the Annual Reports to Stockholders and the Annual
Reports on Form 10-K of Paramount for each of the fiscal years
ended October 31, 1988 through 1992, the Transaction Report on Form
10-K of Paramount for the period from November 1, 1992 through
April 30, 1993 and Quarterly Reports on From 10-Q of Paramount for
the quarters ended January 31, April 30 and July 31 for each of the
same fiscal years and for the quarters ended January 31, April 30,
July 31 and October 31, 1993, (b) the Annual Reports to
Stockholders and the Annual Reports on Form 10-K of Viacom for each
of the fiscal years ended December 31, 1988 through 1992, and
Quarterly Reports on Form 10-Q of Viacom for the quarters ended
March 31, June 30 and September 30 for each of the same fiscal
years, and for the quarters ended March 31, June 30, and September
30, 1993, (c) the Annual Reports to Stockholders and the Annual
Reports on Form 10-K of QVC for each of the fiscal years ended
January 31, 1989 through 1993, and Quarterly Reports on Form 10-Q
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of QVC for the quarters ended April 30, July 31 and October 31 for
each of the same fiscal years, and for the quarters ended April 30,
July 31 and October 31, 1993 and (d) the Annual Reports to
Stockholders and the Annual Reports on Form 10-K of Blockbuster for
each of the fiscal years ended December 31, 1988 through 1992, and
Quarterly Reports on Form 10-Q of Blockbuster for the quarters
ended March 31, June 30 and September 30 for each of the same
fiscal years, and for the quarters ended March 31, June 30, and
September 30, 1993;
(iv) reviewed certain financial forecasts and other data
provided to us by Paramount, Viacom, QVC and Blockbuster relating
to their respective businesses (except in the case of Paramount,
financial forecasts for fiscal year 1993 only, having been advised
that Paramount has not prepared projections beyond fiscal year
1993);
(v) conducted discussions with members of the senior
management of Paramount, Viacom, QVC and Blockbuster with respect
to the business and prospects of Paramount, Viacom, QVC and
Blockbuster and the strategic objectives of each;
(vi) reviewed public information with respect to certain other
companies in lines of businesses we believe to be comparable to the
businesses of Paramount, Viacom, QVC and Blockbuster;
(vii) reviewed the financial terms of certain business
combinations involving companies in lines of business we believe to
be comparable to those of Paramount, Viacom, QVC and Blockbuster,
and in other industries generally;
(viii) reviewed the historical stock prices and trading
volumes of the Common Stock, Viacom Class B Common Stock, QVC
Common Stock and shares of common stock of Blockbuster;
(ix) reviewed the procedures for bidding set forth in the QVC
Merger Agreement and the Viacom Exemption Agreement, in particular
noting the respective provisions therein providing for the
extension of the QVC Offer or the Viacom Offer, as applicable, for
10 business days upon delivery of a Completion Certificate
(referred to in the QVC Merger Agreement or the Viacom Exemption
Agreement, as applicable) by QVC or Viacom, as applicable; and
(x) conducted such other financial studies, analyses and
investigations as we deemed appropriate.
We have assumed and relied upon the accuracy and completeness
of the financial and other information provided by Paramount,
Viacom and QVC to us, and on the representations contained in the
QVC Merger Agreement, and we have not undertaken any independent
verification of such information or any independent valuation or
appraisal of any of the assets of Paramount, Viacom or QVC. With
respect to the financial forecasts referred to above, we have
assumed that they have been reasonably prepared on a basis
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reflecting the best currently available judgements of the
managements of Paramount, Viacom and QVC as to the future financial
performance of Paramount, Viacom and QVC, respectively. In
addition, we have assumed that the Viacom Proposal was made in
compliance with the terms and conditions of the Viacom Exemption
Agreement. Further, our opinions are based on economic, monetary
and market conditions existing on this date.
We have not reviewed any proxy statement or similar document
that may be prepared for use in connection with the proposed QVC
Two-Step Transaction. In accordance with the Procedures for
Submissions of Proposals established by Paramount's Board of
Directors on December 13, 1993, Paramount's Board of Directors on
December 13, 1993, Paramount's Board of Directors has authorized us
to respond to inquiries with respect to Paramount from prospective
bidders (in addition to QVC and Viacom) and to receive proposals
from additional bidders, if any. We have not, however, solicited
third party indications of interest in acquiring all or any part of
Paramount.
As part of our analysis, we have continued to evaluate the
transactions, as we have in the past, not only on the basis of
current market values but also applying other financial valuation
methodologies generally applicable to transactions of this type.
These financial valuation methodologies produced conflicting
results and accordingly were inconclusive in the aggregate as to
the superiority from a financial point of view of one proposal over
the other and do not in our opinion justify disregarding the
significantly higher market valuation of the QVC Transaction
Consideration.
Our engagement and the opinions expressed herein are solely
for the benefit of Paramount's Board of Directors and are not on
behalf of, and are not intended to confer rights or remedies upon,
Viacom, QVC, any stockholders of Paramount, Viacom or QVC or any
other person other than Paramount's Board of Directors.
Based on and subject to the foregoing and such other factors
as we deemed relevant, including our assessment of economic,
monetary and market conditions existing on the date of this letter,
we are of the opinion that, as of this date, (i) the QVC
Transaction Consideration is fair to the Stockholders from a
financial point of view and (ii) the QVC Transaction Consideration
is superior to the Amended Viacom Transaction Consideration from a
financial point of view.
Very truly yours,
/s/ Lazard Freres & Co.
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EXHIBIT INDEX
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EXHIBIT DESCRIPTION PAGE NO.
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1 * Pages 5, 6 and 10-20 of Paramount's Proxy Statement dated
January 29, 1993 for its 1993 Annual Meeting of
Stockholders.
2 * Employment Agreement with Robert Greenberg, a senior vice
president of Paramount, dated as of April 5, 1993.
3 * Press Release issued on November 6, 1993.
4 * Letter to Stockholders of Paramount dated November 8, 1993
with respect to the Viacom Offer.
5 * Letter to Stockholders of Paramount dated November 8, 1993
with respect to the QVC Offer.
6 * Amended and Restated Agreement and Plan of Merger, dated as
of October 24, 1993, between Paramount and Viacom.
7 * Amendment No. 1, dated as of November 6, 1993, to the
Amended and Restated Agreement and Plan of Merger.
8 * Stock Option Agreement, dated as of September 12, 1993, as
amended on October 24, 1993, between Paramount and Viacom.
9 * Voting Agreement, dated as of September 12, 1993, as amended
on October 24, 1993, between Paramount and Amusements.
10 * Press Release issued by Viacom on November 12, 1993.
11 * Press Release issued on November 15, 1993.
12 * Letter to Stockholders of Paramount dated November 16, 1993
with respect to the QVC Offer.
13 * Press Release issued by QVC on November 20, 1993.
14 * Press Release issued by Viacom on November 19, 1993.
15 * Press Release issued by QVC on November 22, 1993.
16 * Press Release issued by Viacom on November 22, 1993.
17 * Press Release issued by QVC on November 23, 1993.
18 * Press Release issued by Viacom on November 23, 1993.
19 * Press Release issued by QVC on November 24, 1993.
20 * Press Release issued by Viacom on November 24, 1993.
21 * Memorandum Opinion in QVC Network, Inc. v. Paramount
Communications Inc., et al., Civ. Action No. 13208 (Del. Ch.
November 24, 1993).
22 * Preliminary Injunction Order in QVC Network, Inc. v.
Paramount Communications Inc., et al., Civ. Action No. 13208
(Del. Ch. November 24, 1993).
23 * Press Release issued by Paramount on November 24, 1993.
24 * Press Release issued by Viacom on November 24, 1993.
25 * Press Release issued by Viacom on November 26,1993.
26 * Press Release issued by Viacom on November 29, 1993.
27 * Order of the Delaware Supreme Court dated November 29, 1993.
28 * Press Release issued by QVC on December 1, 1993.
29 * Revised Memorandum Opinion in QVC Network, Inc. v. Paramount
Communications Inc., et al., Civ. Action No. 13208 (Del. Ch.
November 24, 1993).
30 * Press Release issued by QVC on December 10, 1993.
31 * Press Release issued by Paramount on December 9, 1993.
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*Previously filed.
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EXHIBIT DESCRIPTION PAGE NO.
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32 * Press Release issued by Viacom on December 9, 1993.
33 * Order in Paramount Communications Inc., et al. v. QVC
Network, Inc., Civ. Action No. 13208 (Del. December 9,
1993).
34 * Press Release issued by QVC on December 9, 1993.
35 * Letter from Richards, Layton & Finger to Vice Chancellor
Jack B. Jacobs of the Delaware Court of Chancery dated
December 10, 1993.
36 * Bidding Procedures of Paramount dated December 14, 1993.
37 * Press Release issued by Paramount on December 14, 1993.
38 * Letter to Stockholders of Paramount dated December 14, 1993
with respect to the Viacom Offer and the QVC Offer.
39 * Press Release issued by QVC on December 14, 1993.
40 * Press Release issued by Viacom on December 14, 1993.
41 * Press Release issued by QVC on December 16, 1993.
42 * Letter from Wachtell, Lipton, Rosen & Katz to Lazard dated
December 14, 1993.
43 * Letter from Simpson Thacher & Bartlett to Wachtell, Lipton,
Rosen & Katz dated December 15, 1993.
44 * Press Release issued by Paramount on December 15, 1993.
45 * Letter from the Delaware Chancery Court to Young, Conaway,
Stargatt & Taylor; Richards, Layton & Finger; Morris &
Morris; and Morris, Nichols, Arsht & Tunnell dated December
14, 1993.
46 * Revised pages to the Memorandum Opinion in QVC Network, Inc.
v. Paramount Communications Inc., et al., Civ. Action No.
13208 (Del. Ch. November 24, 1993).
47 * Letter from Shearman & Sterling to Lazard dated December 15,
1993.
48 * Letter from Simpson Thacher & Bartlett to Shearman &
Sterling dated December 16, 1993.
49 * Letter from Simpson Thacher & Bartlett to Wachtell, Lipton,
Rosen & Katz dated December 17, 1993.
</TABLE>
<TABLE>
<S> <C> <C>
50 * Press Release issued by Paramount on December 20, 1993.
51 * Press Release issued by QVC on December 22, 1993.
52 * Press Release issued by Paramount on December 22, 1993.
53 * Agreement and Plan of Merger, dated as of December 22, 1993,
between Paramount and QVC.
54 * Voting Agreement dated December 22, 1993 among BellSouth
Corporation, Comcast Corporation, Cox Enterprises, Inc.,
Advance Publications, Inc. and Arrow Investments, L.P.
55 * Letter to Stockholders of Paramount dated December 23, 1993
with respect to the Revised QVC Offer and the Viacom Offer.
56 * Opinion of Lazard dated December 21, 1993.
57 * Notice of Termination dated December 22, 1993 delivered by
Paramount to Viacom.
58 * Exemption Agreement, dated as of December 22, 1993, between
Viacom and Paramount.
59 * First Amendment, dated as of December 27, 1993, to Agreement
and Plan of Merger, dated as of December 22, 1993, between
Paramount and QVC.
60 * Press Release issued by QVC on January 7, 1994.
61 * Press Release issued by QVC on January 10, 1994.
</TABLE>
- ---------------
*Previously filed.
<PAGE>
<TABLE>
EXHIBIT DESCRIPTION PAGE NO.
- ------- ------------------------------------------------------------ --------
<S> <C> <C>
62 * Press Release issued by Paramount on January 7, 1994.
63 * Press Release issued by Viacom on January 7, 1994.
64 * Press Release issued by Viacom on January 9, 1994.
65 Letter from Wachtell, Lipton, Rosen & Katz to the Paramount
Board dated January 11, 1994.
66 Letter from Shearman & Sterling to the Paramount Board dated
January 12, 1994.
67 Letter from Paramount to Wachtell, Lipton, Rosen & Katz
dated January 13, 1994.
68 Press Release issued by Paramount on January 12, 1994.
69 Letter from Simpson Thacher & Bartlett to Shearman &
Sterling and Wachtell, Lipton, Rosen & Katz dated January
13, 1994.
70 Letter to Stockholders of Paramount dated January 13, 1994
with respect to the Current QVC Offer and the Revised Viacom
Offer.
71 Opinion of Lazard dated January 12, 1994.
</TABLE>
- ---------------
*Previously filed.
Wachtell, Lipton, Rosen & Katz
January 11, 1994
The Board of Directors
Paramount Communications Inc.
15 Columbus Circle
New York, NY 10023
Ladies and Gentlemen:
The eleventh-hour offer by Blockbuster/Viacom
announced Friday afternoon blatantly violates the terms of the
bidding procedures established by the Paramount Board and
agreed to by QVC and Viacom. It is incumbent upon the
Paramount Board to take appropriate action, consistent with
its agreements with QVC and Viacom, to enforce the bidding
procedures. Both QVC and the Paramount stockholders are
entitled to such action by the Board.
It is evident, and indeed Viacom has in effect
admitted, that the new Blockbuster/Viacom offer was
announced -- not as a bona fide competitive offer -- but
primarily to extend QVC's offer and to prevent QVC from
receiving at least 50.1% of the Paramount common stock before
the expiration of its offer on Friday, January 7. Such action
is expressly prohibited by the agreements entered into by the
parties, see Viacom-Paramount Exemption Agreement, Section
---
2.01(a), and represents a bad faith, cynical and manipulative
scheme to abuse the bidding process. Thus:
1. Blockbuster and Viacom announced their new offer
only minutes before the close of the market on Friday,
January 7, only hours before QVC's offer was set to
expire.
2. The purposeful, grossly front-end-loaded nature of
the Blockbuster/Viacom offer at that late hour created
inevitable confusion in the market. Moreover, Viacom
compounded the confusion by causing the premature
cessation of trading in its own shares and falsely
representing to the marketplace that "QVC would also be
required to extend its offer to expire no earlier than"
January 21. By virtue of the fact that Viacom's offer
was in breach of the parties' agreements, QVC was not so
obligated. See QVC-Paramount Merger Agreement, Section
---
2.1(d) and (e). As described yesterday in The New York
------------
Times, Viacom's tactic of a last-minute announcement and
-----
the heavily front-end-loaded offer produced "the power of
a misleading headline" for an offer whose blended value
"was clearly less than the value of the QVC offer." It
is plain that Viacom's abusive and misleading tactics
deterred stockholders from tendering into QVC's superior
offer before the midnight deadline and was expressly
intended to do so.
<PAGE>
3. Indeed, in a teleconference with analysts, Viacom
was obliged to concede that the then - $79.23 blended
value of its offer (by Viacom's own estimate) was
substantially lower than the approximate $84.66 value of
QVC's bid as of the market close on that day. Market
activity since then has confirmed QVC's recognition that
not only is the new offer lower than QVC's (by, as of
close of market today, approximately $720 million or
$5.88 per Paramount share), but it is not even worth more
than Viacom's own prior offer.
4. According to published reports, on Saturday, January
8, the President and Chief Executive Officer of Viacom
admitted the true purpose of the new offer when he stated
to Reuters that the Blockbuster/Viacom offer was nothing
more than "essentially a re-jigging of Viacom's previous
bid"; that the Blockbuster/Viacom offer reflects
Paramount's "full value"; and that "Paramount was not
worth more than current bid levels."
The bidding procedures agreed upon by the parties
were designed to obtain higher -- not lower -- values for
Paramount stockholders, while assuring fairness between the
competing bidders. Viacom's conduct makes a mockery of these
procedures: on the first deadline, December 20, 1993, Viacom
declined to raise noticeably its earlier offer -- albeit that
offer was plainly lower than QVC's outstanding offer; on the
second deadline, Viacom bid lower, not higher. Viacom's
-----
tactics have been designed solely to prolong the bidding
process, forestall QVC's rightful victory and delay the
receipt of value by Paramount stockholders. Neither
Paramount, QVC, nor Paramount's public stockholders obtain any
benefit from the "re-jigging" of an already-inferior offer,
and the costs and risks of delay in consummating the QVC-
Paramount merger are significant.
In stark contrast to Viacom's conduct, throughout
this bidding process QVC has consistently complied with both
the letter and spirit of the bidding procedures -- by
submitting a substantially increased bid on December 20 and,
now, by further extending its offer so that the Minimum
Condition may be met.
Viacom is in breach of its contract with Paramount
and its conduct is wrongful both to QVC and to the Paramount
stockholders. QVC requests that the Paramount Board at its
meeting tomorrow take appropriate action:
1. Confirming the Board's unanimous recommendation to
Paramount stockholders that the QVC offer and second-step
merger are fair to and in the best interests of Paramount
stockholders and that Paramount stockholders accept QVC's
offer;
2. Declaring that the new Viacom offer is in breach of
the Exemption Agreement between Paramount and Viacom and
<PAGE>
disentitles Viacom to the rights it otherwise would have
under that agreement;
3. Confirming -- at a minimum -- that Viacom will not
------------
be permitted to gain an improper advantage from having
wrongfully made an offer "primarily to extend the
expiration date" of QVC's offer; that no new Viacom offer
---
during this extension period will operate to place any
obligation on QVC to further extend its offer prior to
receiving 50.1% of Paramount stock; and that the
Paramount stockholders are assured that, if by midnight,
January 21, 1994, they choose to tender 50.1% or more of
Paramount shares into the QVC offer, that offer will be
successful and stockholders will not be further delayed
in obtaining value; and
4. In light of the cynical massive front-end loading of
Viacom's current offer and to protect Paramount
stockholders from further exacerbation of the improper
front-end loading, declaring that the Paramount Board
will not consider any further Viacom offer unless such
offer redresses the imbalance.
QVC expressly reserves all of its rights under the
circumstances, including the right to seek judicial redress
and to withdraw its offer pursuant to its terms and the terms
of the merger agreement. QVC and its advisors remain
available to discuss any of the foregoing with the Paramount
Board or its advisors.
Very truly yours,
/s/ Martin Lipton
Martin Lipton
SHEARMAN & STERLING
January 12, 1994
The Board of Directors
Paramount Communications Inc.
15 Columbus Circle
New York, NY 10023
Ladies and Gentlemen:
Yesterday's letter from Wachtell Lipton, on behalf of QVC,
to the Paramount Board was a transparent attempt to tilt the playing
field in its favor and to eliminate the ability of Paramount's
stockholders to make an informed choice between the Viacom and QVC
offers.
On January 7, Viacom increased the cash price of its tender
offer to Paramount stockholders by over $1.1 billion, or more than
$800 million more in cash than under QVC's offer. In full
compliance with the bidding procedures agreed to by Paramount,
Viacom and QVC, and as required by federal securities laws, Viacom
also extended the expiration date of its tender offer until January
21. Now QVC, through a disingenuous press campaign and by seeking
inappropriately to pressure you, is seeking to change the rules to
suit its own purposes.
Viacom's January 7 proposal represents in Viacom's opinion a
substantial improvement for Paramount stockholders. Viacom
increased the cash in its first step tender offer from $85 to $105
per share, or by over $1.1 billion, while reducing the value (based
on January 6 closing prices) of the common stock offered in the
second step by $900 million. This represents an improvement in the
blended value of the transaction, based on market prices, of
approximately $200 million, or $1.60 per share. This was
accomplished by agreeing to sell Blockbuster approximately 22.7
million shares of Class B Common Stock at $55 per share, reflecting
Viacom's and Blockbuster's view of the unaffected trading value of
the Class B Common Stock, and providing to Paramount shareholders
the benefit of the increased cash value of $55 per share paid by
Blockbuster. Equally important, Viacom dramatically increased the
certainty of the value of the consideration offered in the
transaction by increasing the cash component of the blended value,
based on market prices, from about 55% to about 65%. This reduces
the
<PAGE>
2
impact of short-term and deal-influenced price fluctuations on
the overall value of the transaction. In addition, the
preferred stock remained in place and in Viacom's view should
benefit from the strengthening of Viacom's balance sheet and
diversification of cash flows to be realized by combining
Viacom, Blockbuster and Paramount.
In addition to the specific changes to the offer
outlined above, Viacom and Blockbuster agreed to merge,
creating a premiere entertainment company which Viacom believes
will significantly enhance the value to Paramount of merging
with Viacom. Indeed, it is clear to Viacom that the
combination of the three companies will create an even more
diversified company than the Viacom and Paramount combination
considered alone, with greater financial flexibility and
stability of cash flows and the resources necessary to enable
the combined companies to continue to compete successfully in
the quickly evolving entertainment industry. A
Viacom-Blockbuster-Paramount combination is in Viacom's view an
international powerhouse which should ultimately be reflected
in shareholder value.
Viacom firmly believes that its current proposal to
acquire Paramount is demonstrably superior to QVC's proposal.
Attached to this letter is Smith Barney's summary analysis
supporting this conclusion. Viacom believes that its Class B
Common Stock currently is significantly undervalued, and that
calculating the value of its offer for Paramount based on
current trading values therefore significantly understates its
inherent value. Viacom also believes that the value Paramount
stockholders will ascribe to the Viacom proposal should not be,
and ultimately will not be, determined based upon trading
values created by short-term trading interests, the superficial
press analyses on which QVC prefers to rely, or QVC's campaign
of disinformation. Rather, Viacom believes that stockholders
will assess (and that the Board in the exercise of its
fiduciary responsibilities should also assess) Viacom's offer
based on the higher percentage of cash offered and an
assessment of the likely long-term trading values of Viacom's
and QVC's securities on an unaffected basis following
completion of the respective transactions. Viacom is confident
that stockholders, once they understand the facts, will
conclude that Viacom is offering superior overall value.
Accordingly, it is ludicrous for QVC to suggest that
Viacom's January 7 offer was made primarily or otherwise to
extend the expiration date of QVC's offer in violation of the
agreed bidding procedures. In any event, Viacom's management
has confirmed to me unequivocally that this was not the case.
<PAGE>
3
QVC claims that Viacom's announcement of its offer on
January 7 was "abusive and misleading," because it was
announced on Friday afternoon and because the proposal is
"front-end-loaded".
QVC's rhetoric aside, it is important to set the
record straight:
1. The bidding procedures were agreed to by each of
Viacom and QVC and, as the Board is aware, were based
primarily on the procedures requested by QVC.
2. Under the bidding procedures agreed to by QVC,
Viacom was entitled to raise its offer at any time up until
midnight on January 7, in which event QVC was required to
extend its offer. In fact, Viacom announced its offer
immediately after finalizing its agreements with
Blockbuster, following several days of around-the-clock
negotiations. Viacom has complied fully with the bidding
procedures.
3. QVC complains that Viacom's offer is
"front-end-loaded." In fact, Viacom and QVC are offering
cash for the exact same percentage of shares of Paramount
(50.1% of the outstanding shares, plus exercisable
options). No doubt it concerns QVC that by offering cash
for the same percentage of shares as QVC, Viacom has
illustrated the significant difference in the cash offered
under the two proposals. The cash advantage afforded to
---- ---------
Paramount stockholders by the Viacom proposal is $105
compared to $92 for 50.1% of the Paramount shares, or
$52.50 compared to $46 per share considered on a blended
basis. The Paramount board, in establishing the bidding
procedures, expressed a preference for cash. QVC itself
previously touted its cash advantage. We believe
Paramount's stockholders will now find the cash
differential in favor of Viacom to be compelling, given the
certainty of the value of cash as compared to the recent
deal-driven volatility in the trading values of the
securities offered in the two transactions.
4. The Viacom offer is not coercive. The proration
--- ------ ----- -- --- --------
rules of the offer, when combined with the "pourover"
provisions of the bidding procedures, ensure that all
shareholders will have a full opportunity to tender into
the winning offer and participate in the cash portion of
the transaction. We would remind the Board that QVC
specifically proposed the pourover provisions as a method
of ensuring that neither offer would be coercive.
<PAGE>
4
5. QVC contrasts its conduct under the bidding
procedures with Viacom's by claiming it submitted a
"substantially increased bid on December 20..." However,
we would point out to the Board that the $2 per share cash
increase in QVC's December 20 offer, misleadingly ascribed
to its not paying Viacom's $100 million termination fee, in
fact primarily resulted from its slipping in a reduction of
its minimum condition from 51% to 50.1% (freeing up
approximately $100 million in cash). On January 7, Viacom
simply matched QVC's minimum condition, to allow Paramount
stockholders to compare "apples to apples".
Based upon its mischaracterizations of Viacom's
January 7 offer, QVC urges the Board to declare that Viacom's
offer is in violation of the Exemption Agreement, so that
Viacom would no longer be entitled to the rights it would
otherwise have under that agreement. QVC also seeks other
unilateral changes to the bidding procedures, changes which we
can only assume it believes will increase the likelihood that
it will prevail with its offer. In effect, QVC is seeking to
have itself declared the "winner", and even refers to its
"rightful victory".
However, the issue is not QVC's "right" to victory,
for it has no such "right" independent of the Paramount
stockholders' best interests. The real issue is whether the
--- ---- ----- -- ------- ---
Paramount stockholders will be permitted to choose which offer
- --------- ------------ ---- -- --------- -- ------ ----- -----
is superior, as contemplated by the bidding procedures.
- -- --------
In contrast to QVC, Viacom seeks no special treatment.
We are not seeking changes to the bidding procedures which
could give Viacom an advantage. We are not threatening to drop
our offer or to pursue litigation against Paramount, as has
QVC.
We will continue to play by the rules. And most
----
importantly, we will continue to exhort the Board to abide by
----
the bidding procedures so that stockholders can decide which
offer to accept. We believe the Board should be and will
continue to be guided by this overriding principle. Viacom and
its advisors are available to discuss our offer or any of the
foregoing issues with the Paramount Board or its advisors.
Very truly yours,
/s/ Stephen R. Volk
Stephen R. Volk
<PAGE>
SMITH BARNEY SHEARSON ADDENDUM
------------------------------
I. Viacom's Revised Offer Is Substantially Improved
. Viacom significantly increased the cash portion of its bid
-- Increased from $85/share to $105/share
-- A total increase of over $1.1 billion
. Viacom greatly increased the certainty of the value of its bid
-- Cash now represents 65% vs. 55% under its previous bid
-- Any short term stock price fluctuation will have less impact
. Viacom's blended offer improved by approximately $194 million or
$1.58/share
REVISED PREVIOUS
------- --------
Exchange Exchange
% Ratio Value % Ratio Value
--- -------- ------ --- -------- ------
Cash 50.1% $105 $52.61 51% $85 $43.35
VIA($47.875)* 49.9% .00000 0.00 49% .20408 4.79
VIAB($43.500)* 49.9% .93065 20.20 49% 1.08317 23.09
Conv.Pref. 49.9% .30408 7.59 49% .30408 7.59
------ ------
$80.40 $78.82
* Price as of 1/6/94 close
<PAGE>
II. Viacom's Announced Merger with Blockbuster Adds Significant Value to a
Viacom/Paramount Merger
. Blockbuster is an extremely well run high growth company
-- largest retailer of home video products in the world
-- leading national brand
-- expected goal to become the largest U.S. music retailer in 1994
-- distributer of filmed entertainment through Spelling and Republic
pictures
-- significant growth expected in entertainment centers (Discovery
Zone)
. Wayne Huizenga, Steve Berrard and their management team will provide
significant additional management strength for the combined companies.
. Wall Street analysts are extremely positive on Blockbuster as shown by
the most recent research reports.
Date Firm Rating
---- ---- ------
11/30/93 Robertson Stephens Buy/Hold
11/22/93 William Blair Buy
11/02/93 NatWest Securities Buy
11/01/93 Paine Webber 2-Buy
10/27/93 Goldman Sachs Moderate Outperform
10/21/93 Kidder Peabody Outperform
10/21/93 Merrill Lynch Buy
. Blockbuster provides the combined Viacom/Paramount/Blockbuster a strong
balance sheet, strong cash flow, and earnings diversification.
-- Combined company is expected to have:
- market capitalization in excess of $26 billion
- 1994 cashflow (EBITDA) in excess of $2 billion
- total debt/capitalization below 42%
. The cashflow generated by a combined Viacom/Blockbuster/Paramount will
be balanced, with each company contributing approximately one-third
-- This will help offset Paramount's lower cash flow multiple and
protect against Paramount's more volatile earnings base.
<PAGE>
. Blockbuster combined with Viacom/Paramount will provide significant
additional revenue enhancements and cost reduction opportunities
Revenue Enhancement Cost Reduction
------------------- --------------
- Retail Distribution - Distribution
- Merchandising - Advertising
- Multimedia - Overhead
- Cross Promotion - Purchasing economies
MTV/music retail
Showtime/video rental
Nickelodeon/Discovery Zone
- Database marketing
- Fifth network
- International
- Edutainment
- Live entertainment
<PAGE>
III. Viacom's Offer is Superior to QVC's Offer
. Viacom is offering significantly more cash per share than QVC
Per Share Total
--------- -----
Viacom $105 $6.5 Billion
QVC $ 92 $5.7 Billion
---- ------------
$ 13 $800 Million
-- Approximately $6.52 more per share on a blended basis
. Viacom believes its shares are significantly more valuable than QVC's
shares
-- Viacom is a much larger and diversified company than QVC
Viacom/Blockbuster QVC
------------------ ---
- Cable TV Networks - Home Shopping Cable Network
- MTV
- VH1
- Nickelodeon
- Nick at Nite
- Showtime
- The Movie Channel
- Flix
- TV and Radio Stations
- Significant Cable Operations
- Joint Ventures
- Lifetime
- Comedy Central
- All News Channel
- Video rental
- Music retailing
- Filmed entertainment
- Entertainment Centers
-- Viacom and Blockbuster have substantially more complementary
assets to Paramount's than QVC
-- The $3 billion of value created through a Viacom/Paramount
combination that Booz Allen presented to Paramount is
conservative
- This represents over $24/share of potential value
-- Viacom's talented management team has an extremely successful
track record of generating significant growth and innovation
<PAGE>
IV. Viacom's Stock Price Should be Dramatically Higher than QVC's After a
Completed Merger with Paramount
VIA/ PCI/ BV QVC/ PCI
-------------- ---------
- % Contribution to Combined
EBITDA 32% 34% 34% 25% 75%
- Pre transaction EBITDA
multiple (9/7/93*) 16.5x 10.4x 14.0x 15.5x 10.4x
- Weighted avg EBITDA
multiple 13.6x** 11.7x
- Implied stock price*** $55 $26
* Immediately before Viacom's announced merger agreement with Paramount
** Due to the substantial synergies expected to be achieved, and prospects for
higher growth, the multiple could approach 15x for Viacom/Blockbuster/Paramount.
*** Based upon estimated 1994 EBITDA and pro forma capitalization
. Viacom should trade now at $55 based on its weighted EBITDA multiple
. Viacom's deal is now trading at a significantly lower 1994 EBITDA
multiple than QVC's deal
. Smith Barney believes QVC's current stock price does not reflect post
transaction realities
-- QVC's current price of $39 7/8 implies a multiple well in excess
of 11.7x, its weighted average multiple - approximately 14.2x
-- This implies that a management change results is over $2 billion
of value
-- QVC has stated it intends to sell Paramount's theme parks and TV
stations which we believe to represent over 25% of Paramount's
cash flow
- The EBITDA multiple that could be achieved in a sale would
be substantially below the multiple paid to acquire
Paramount
- This would further increase QVC's implied EBITDA multiple
required to hold its current price
. While Barry Diller may be an excellent manager, increasing Paramount's
inherent growth rate by merely a management change appears unlikely
-- In any event, Viacom and Blockbuster have achieved equal
accomplishments without reliance on any one individual
. Paramount's lower multiple reflects an expected lower
growth rate
-- This growth rate and multiple is in line with its closest
comparables
- Time Warner
- Disney
<PAGE>
. While improving studio cash flow may be possible, the studio
represents less than 20% of Paramount's cash flow
. The remaining 80% of cash flow represent businesses where the growth
and profitability can not be easily altered through management change
- Publishing - Theatres
- Madison Square Garden - TV stations
- MSG Cable Network - Theme Parks
- USA and SciFi Networks - Knicks and Rangers
PARAMOUNT COMMUNICATIONS INC.
January 13, 1994
Martin Lipton, Esq.
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019
Dear Martin:
The Board of Directors has considered the claim of QVC that Viacom
violated the Exemption Agreement between Paramount and Viacom and, based on
the information available to it, has no reason to believe that the Viacom
proposal was made primarily to extend QVC's offer or was otherwise in bad faith.
One other matter. We are not in agreement with the statement
that QVC has the right under the terms of the Merger Agreement to terminate
its offer in the event the minimum condition is not satisfied at midnight
on January 21, 1994.
Sincerely,
/S/ Donald Oresman
Paramount Communications Inc.
- ------------------------------------------------------------------
15 Columbus Circle NEWS
New York, NY 10023-7780
212-373-8000
Fax 212-373-8558
FOR IMMEDIATE RELEASE
January 12, 1994
NEW YORK, Jan. 12 -- Paramount Communications Inc. (NYSE: PCI)
announced today that its Board of Directors has unanimously
recommended that Paramount's stockholders reject the revised
tender offer by Viacom Inc. and not tender any of their shares
pursuant to the Viacom offer. The Paramount Board also reaffirmed
its recommendation that Paramount stockholders accept the tender
offer by QVC Network, Inc. and tender all of their shares pursuant
to the QVC offer.
Following its evaluation of recommendations from Paramount's
financial and legal advisors, the Board reaffirmed its
determination that the revised QVC offer and its second-step
merger, taken together, are fair and in the best interests of
Paramount's stockholders. The Board also determined that,
although the per-share cash consideration offered in the revised
Viacom offer is higher than that offered in the QVC offer, the
aggregate consideration offered in the QVC offer and its second-
step merger, taken together, represents the best value available
to Paramount stockholders.
Martin S. Davis, chairman and chief executive officer of
Paramount Communications, said, "the bidding procedures adopted by
the Board were designed to solicit the best obtainable bid and,
therefore, the greatest ultimate value for shareholders. The
Board remains committed to that objective and it will continue to
closely monitor the situation for new developments. The Board
also will continue to communicate to shareholders its views
regarding any significant developments."
"Any future bids," Mr. Davis added, "will, however, continue
to be rigorously reviewed with regard to their compliance with the
bidding procedures. The Board strongly encourages the bidders to
submit their best and final bids at the earliest possible date.
Nonetheless, the procedures were designed to preclude bids from
being submitted after February 1 and that deadline will not be
extended."
"The procedures set up by the Board," Mr. Davis emphasized,
"ensure that Paramount's shareholders will ultimately determine
the winning bidder by tendering their shares based on their own
judgment."
# # #
Contact: Jerry Sherman
Paramount Communications Inc.
(212) 373-8725
Carl D. Folta
Paramount Communications Inc.
(212) 373-8530
Jeffrey Z. Taufield
Kekst and Company
(212) 593-2655
SIMPSON THACHER & BARTLETT
(A PARTNERSHIP WHICH INCLUDES PROFESSIONAL CORPORATIONS)
January 13, 1994
Stephen R. Volk, Esq.
Shearman & Sterling
599 Lexington Avenue
New York, New York 10022
Martin Lipton, Esq.
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019
Gentlemen:
In order to provide greater certainty and predictability for the benefit of
Paramount, its stockholders and each of QVC and Viacom with respect to the
conclusion of the bidding process, we have prepared certain clarifying
amendments to the Merger Agreement between Paramount and QVC and the Exemption
Agreement between Viacom and Paramount. We do not propose to change the
procedures but simply to address interpretive issues by clarifying or refining
the existing obligations of the parties. The amendments we propose are as
follows:
(i) The first amendment will make it clear that a bidder is not permitted
to change its proposal to acquire Paramount after February 1. Although we
believe that the "Offer" in the context of the bidding procedures contemplates
both the terms of the tender offer and the second-step merger consideration
offered by the bidders, in the absence of this amendment, it could be asserted
that changes in the proposed second-step merger consideration offered by a
bidder could be made subsequent to February 1, 1994. We believe that this
amendment accurately reflects the spirit and good faith intention of the parties
that any bid made on February 1, 1994 represent such bidder's highest and final
bid and that a bidder should not willfully take an action to cause its offer to
extend past February 14, 1994. Moreover, as you know, the substance of this
amendment was in the bidding procedures originally proposed by Paramount. To
implement this amendment, we are also proposing a technical conforming amendment
to the time period associated with amending the terms of the consideration to be
paid pursuant to the back-end merger;
(ii) The Merger Agreement should be revised to clarify that a bidder may
not revise the consideration offered in its proposed second-step merger with
Paramount primarily to extend the expiration date of the other bidder's offer
(this point is, of course, implicit in any contractual party's obligation of
good faith and fair dealing with respect to any contract);
<PAGE>
-2-
Stephen R. Volk, Esq. January 13, 1994
Martin Lipton, Esq.
(iii) In order to further ensure that the parties abide by the spirit
of the bidding procedures, we are also proposing that a bidder can neither seek
to amend the bidding procedures nor publicly announce an intention to either
take an action which is not otherwise permitted or refrain from taking an action
which is required, under the agreement applicable to such bidder (this point is
also implicit in a contractual party's obligation of good faith and fair dealing
with respect to any contract); and
(iv) In order to further provide for an orderly process and avoid
confusion, we also propose that any revision to a bidder's tender offer or
second-step merger consideration must be on file with the Securities and
Exchange Commission no later than 5:00 p.m. on the date the offer would
otherwise expire.
A form of amendment to each of the Merger Agreement and the Exemption
Agreement with our proposed revisions is attached for your review.
We would appreciate a prompt response to our proposals. Please feel free
to call us with any questions or comments you may have.
Sincerely,
/s/ Richard I. Beattie
Richard I. Beattie
Attachment
<PAGE>
SECOND AMENDMENT
SECOND AMENDMENT (this "Amendment"), dated as of January __, 1994, to
the Agreement and Plan of Merger, dated as of December 22, 1993 (the "Merger
Agreement"), between QVC Network, Inc., a Delaware corporation ("QVC"), and
Paramount Communications Inc., a Delaware corporation ("Paramount").
WITNESSETH:
WHEREAS, QVC and Paramount have agreed to amend certain provisions of
the Merger Agreement in the manner provided below;
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements herein contained, the parties hereto agree as follows:
SECTION 1. Defined Terms. As used in this Amendment, terms defined in
-------------
the Merger Agreement are used herein as therein defined, unless otherwise
defined herein. Unless otherwise indicated, all Section and subsection
references are to the Merger Agreement.
SECTION 2. Amendments to Section 2.1(c). Section 2.1(c) is hereby
----------------------------
amended by deleting in the first sentence of the second paragraph thereof the
words "other than a change in the terms of the Offer" and by substituting, in
their place, the phrase "outside the control of QVC." Section 2.1(c) is also
amended by (i) inserting after the words "Common Stock payable in the Offer
or" in the last sentence thereof the phrase "the second-step merger to be
completed pursuant to this Agreement upon consummation of the Offer (the
"Second-Step Merger") or" and (ii) inserting after the words "otherwise amend
the Offer" in the last sentence thereof the phrase "or the terms of the
Second-Step Merger." Section 2.1(c) is further amended by adding at the end
thereof the following sentences:
"Any amendment to the Offer or any change in the consideration
offered to the Paramount stockholders in the Second-Step Merger that results
in an extension of the Expiration Date shall be on file with the SEC by 5:00
p.m. on the date of such amendment or change. QVC agrees that if, after
February 1, 1994, it changes the consideration offered to the Paramount
stockholders in the Second-Step Merger, in such a manner as to necessitate
the filing of an amendment to the Schedule 14D-1, then QVC shall be required
to extend its Offer for a period of not less than ten business days. QVC
hereby agrees that it shall neither seek to amend the bidding procedures nor
publicly announce an intention to take an action, which is not otherwise
permitted or refrain from taking an action which is required, under the terms
of this Agreement."
SECTION 3. Miscellaneous. Except as expressly amended herein, the
-------------
Merger Agreement shall continue to be, and shall remain, in full force and
effect in accordance with its terms. This Amendment may be executed by the
parties hereto in any number of separate counterparts and all of said
counterparts taken together shall be deemed to constitute one and the same
instrument.
<PAGE>
SECTION 4. Governing Law. Except to the extent that Delaware Law is
-------------
mandatorily applicable to the Merger and the rights of the stockholders of
Paramount and QVC, this Amendment shall be governed by, and construed in
accordance with, the laws of the State of New York, regardless of the laws
that might otherwise govern under applicable principles of conflicts of law.
SECTION 5. Counterparts. This Amendment may be executed in one or more
------------
counterparts, and by the different parties hereto in separate counterparts,
each of which when executed shall be deemed to be an original but all of
which taken together shall constitute one and the same agreement.
IN WITNESS WHEREOF, QVC and Paramount have caused this Amendment to be
executed as of the date first written above by their respective officers
thereunto duly authorized.
ATTEST: QVC NETWORK, INC.
By By
------------------------------ ------------------------------
ATTEST: PARAMOUNT COMMUNICATIONS INC.
By By
------------------------------ ------------------------------
<PAGE>
FIRST AMENDMENT
FIRST AMENDMENT (this "Amendment"), dated as of January _, 1994, to the
Exemption Agreement, dated as of December 22, 1993 (the "Exemption Agreement"),
between Viacom Inc., a Delaware corporation ("Viacom"), and Paramount
Communications Inc., a Delaware corporation ("Paramount").
WITNESSETH:
-----------
WHEREAS, Viacom and Paramount have agreed to amend certain provisions of
the Exemption Agreement in the manner provided below;
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements herein contained, the parties hereto agree as follows:
SECTION 1. Defined Terms. As used in this Amendment, terms defined in the
--------------
Exemption Agreement are used herein as therein defined, unless otherwise defined
herein. Unless otherwise indicated, all Section and subsection references are
to the Exemption Agreement.
SECTION 2. Amendments to Section 2.01 (a). Clause (v) of Section 2.01(a)
-------------------------------
is hereby amended by deleting the words "other than a change in the terms of the
Offer" and by substituting, in their place, the phrase "outside the control of
the Offeror." Section 2.01(a) is also amended by (i) inserting after the words
"consideration of the Offer or" in the last sentence thereof the phrase "the
second-step merger as contemplated by the form of Merger Agreement attached as
Exhibit A hereto (the "Second-Step Merger") or" and (ii) inserting after the
words "otherwise amend the Offer" in the last sentence thereof the phrase "or
the terms of the Second-Step Merger." Section 2.01(a) is further amended by
adding at the end thereof the following sentences:
"Any amendment to the Offer or any change in the consideration offered to
the Paramount stockholders in the Second-Step Merger that results in an
extension of the Expiration Date shall be on file with the Securities and
Exchange Commission by 5:00 p.m. on the date of such amendment or change. The
Offeror agrees that if, after February 1, 1994, it changes the consideration
offered to the Paramount stockholders in the Second-Step Merger, in such a
manner as to necessitate the filing of an amendment to its Tender Offer
Statement on Schedule 14D-1, then the Offeror shall be required to extend its
Offer for a period of not less than ten business days. The Offeror hereby
agrees that it shall neither seek to amend the Bidding Procedures nor publicly
announce an intention to take an action, which is not otherwise permitted or
refrain from taking an action which is required, under the terms of this
Agreement."
SECTION 3. Miscellaneous. Except as expressly amended herein, the
-------------
Exemption Agreement shall continue to be, and shall remain, in full force and
effect in accordance with its terms. This Amendment may be executed by the
parties hereto in any number of separate counterparts and all of said
counterparts taken together shall be deemed to constitute one and the same
instrument.
<PAGE>
SECTION 4. Governing Law. This Amendment shall be governed by, and
-------------
construed in accordance with, the laws of the State of Delaware, regardless of
the laws that might otherwise govern under applicable principles of conflicts of
law, except to the extent that any provisions are governed by the federal
securities laws.
SECTION 5. Counterparts. This Amendment may be executed in one or more
------------
counterparts, and by the different parties hereto in separate counterparts, each
of which when executed shall be deemed to be an original but all of which taken
together shall constitute one and the same agreement.
IN WITNESS WHEREOF, Viacom and Paramount have caused this Amendment to be
executed as of the date first written above by their respective officers
thereunto duly authorized.
ATTEST: VIACOM INC.
By By
------------------------------ ------------------------------
ATTEST: PARAMOUNT COMMUNICATIONS INC.
By By
------------------------------ ------------------------------
PARAMOUNT COMMUNICATIONS INC.
January 13, 1994
Dear Stockholder:
On January 7, 1994, Viacom Inc. revised the terms of its tender
offer for, and proposed second-step merger with, Paramount Communications
Inc. Viacom's revisions consisted of an increase in the per Share cash
consideration offered in the Viacom Offer and a decrease in the consideration
offered in the Viacom Second-Step Merger. The Viacom Offer now provides for
the purchase of 50.1% of the outstanding shares of the Company's Common Stock,
on a fully diluted basis, at a purchase price of $105 per Share in cash.
Following completion of the Viacom Offer, Viacom would effect the Viacom
Second-Step Merger in which each Share not purchased in the Viacom Offer
would be converted into the right to receive (i) 0.93065 shares of Viacom
Class B Common Stock and (ii) 0.30408 shares of Viacom Merger Preferred Stock.
Pursuant to a merger agreement entered into between QVC Network, Inc. and
the Company, QVC has made a tender offer for 50.1% of the Shares, on a fully
diluted basis, at a purchase price of $92 per Share in cash. Under the QVC
Merger Agreement, following completion of the QVC Offer, QVC will effect a
second-step merger in which each Share not purchased in the QVC Offer will be
converted into the right to receive (i) 1.43 shares of QVC Common Stock,
(ii) 0.32 shares of QVC Merger Preferred Stock and (iii) 0.32 Warrants to
purchase QVC Common Stock.
YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS REJECT THE
PRESENT VIACOM OFFER AND NOT TENDER ANY OF THEIR SHARES PURSUANT TO IT.
YOUR BOARD OF DIRECTORS UNANIMOUSLY REAFFIRMS ITS PRIOR DETERMINATION THAT
THE QVC OFFER AND THE QVC SECOND-STEP MERGER, TAKEN TOGETHER, ARE FAIR TO, AND
IN THE BEST INTERESTS OF, STOCKHOLDERS OF THE COMPANY AND REAFFIRMS ITS PRIOR
RECOMMENDATION THAT ALL STOCKHOLDERS ACCEPT THE QVC OFFER AND TENDER THEIR
SHARES IN THE QVC OFFER.
In reaching its conclusions, the Paramount Board considered, among other
things, the opinion of Lazard Freres & Co., financial advisor to the Company,
that the aggregate consideration payable to Paramount stockholders in the QVC
Offer and the QVC Second-Step Merger, taken together, (i) is fair to Paramount
stockholders from a financial point of view and (ii) is superior from a
financial point of view to the aggregate consideration payable to Paramount
stockholders in the Viacom Offer and the Viacom Second-Step Merger, taken
together. Other important information is described in the enclosed Schedule
14D-9's being filed with the Securities and Exchange Commission.
Notwithstanding the Board's recommendation, however, stockholders will be
provided with the opportunity to choose between the offers and ultimately
determine which offer will be successful under the bidding procedures previously
adopted by the Board and agreed to by each of Viacom and QVC.
We urge you to read the enclosed materials carefully in making your
decision with respect to tendering your Shares.
Sincerely,
/s/ Martin S. Davis
Martin S. Davis
Chairman of the Board
and Chief Executive Officer
Lazard Freres & Co.
One Rockefeller Plaza
New York, N.Y. 10020
-------------
Telephone (212) 632-6000
Facsimile (212) 632-6060
January 12, 1994
The Board of Directors
Paramount Communications Inc.
15 Columbus Circle
New York, NY 10023-7780
Dear Members of the Board:
We refer to our written opinions to you set forth in the
letter, dated December 21, 1993 (the "December 21, 1993 Letter").
You have requested our opinion, as of this date, as to whether the
QVC Transaction Consideration (as defined below) is superior from a
financial point of view to the Viacom Transaction Consideration (as
defined in the December 21, 1993 Letter), as amended by Viacom on
January 7, 1994 pursuant to the Viacom Proposal (as defined below).
As stated in the December 21, 1993 Letter, we understand
that the proposed acquisition by QVC Network, Inc. ("QVC") of all
of the outstanding shares of common stock (the "Common Stock") of
Paramount Communications Inc. ("Paramount") by means of a cash
tender offer (the "QVC Offer") by QVC, followed by a proposed
second-step merger of Paramount and QVC (the "QVC Second-Step
Merger"; collectively with the QVC Offer, the "QVC Two-Step
Transaction") is to be effected pursuant to the Agreement and Plan
of Merger, dated as of December 22, 1993, between QVC and Paramount
(the "QVC Merger Agreement"), whereby (i) QVC is offering to
purchase 61,607,894 shares of Common Stock, or such greater number
as equals 50.1% of the outstanding shares of Common Stock, at a
purchase price of $92.00 per share in cash, and (ii) following
completion of the QVC Offer, Paramount would be merged into QVC in
the QVC Second-Step Merger, and each share of Common Stock not
purchased in the QVC Offer (other than shares of Common Stock held
in the treasury of Paramount or owned by Paramount or any direct or
indirect wholly-owned subsidiary of Paramount or QVC) would be
converted into the right to receive (a) 1.43 shares of common stock
of QVC (the "QVC Common Stock"), (b) 0.32 shares of a new series 6%
cumulative non-convertible exchangeable preferred stock of QVC (the
"QVC Merger Preferred Stock") and (c) 0.32 warrants to purchase one
share of QVC Common Stock at a price of $70.34 per share,
exercisable at any time by the holder prior to the tenth
anniversary of the QVC Second-Step Merger (the "Warrants") (the
<PAGE>
aggregate consideration payable to holders of Common Stock (the
"Stockholders") pursuant to the QVC Offer set forth in clause (i)
and the aggregate consideration payable to Stockholders pursuant to
the QVC Second-Step Merger set forth in subclauses (a), (b) and (c)
of clause (ii) is collectively referred to as the "QVC Transaction
Consideration"). We also understand that the QVC Merger Agreement
provides that the QVC Merger Preferred Stock will pay cumulative
quarterly dividends at a rate of $3.00 per annum per share, will
have a liquidation preference of $50.00 per share, will be
redeemable for cash by QVC at declining redemption premiums on and
after the fifth anniversary of the QVC Second-Step Merger and will
be exchangeable by QVC into QVC's 6% subordinated debentures (the
"QVC Debentures") at an exchange rate of $50.00 principal amount of
QVC Debenture per share of QVC Merger Preferred Stock on and after
the third anniversary of the QVC Second-Step Merger. In addition,
we understand that the Warrants will be exercisable with cash or by
using an equivalent amount of liquidation preference of QVC Merger
Preferred Stock or principal amount of QVC Debentures and will be
redeemable for chase by QVC, at its option, at $15.00 per Warrant
on and after the fifth anniversary of the QVC Second-Step Merger.
In addition, we understand that, as set forth in (i) the
written proposal submitted to Paramount by Viacom on January 7,
1994 and (ii) Amendment Number 20 to the Tender Offer Statement on
Schedule 14D-1 filed by Viacom Inc. ("Viacom"), National
Amusements, Inc., Mr. Sumner M. Redstone and Blockbuster
Entertainment Corporation ("Blockbuster") with the Securities and
Exchange Commission on January 7, 1994, including the Agreement and
Plan of Merger, dated as of January 7, 1994 (the "Blockbuster
Merger Agreement"), between Blockbuster and Viacom and the
Subscription Agreement (the "Blockbuster Subscription Agreement"),
dated January 7, 1994, between Viacom and Blockbuster (the "Viacom
Tender Offer Statement") (collectively, the "Viacom Proposal"),
Viacom amended the terms of the cash tender offer (the "Viacom
Offer") that it had commenced on October 25, 1993. Under the
Viacom Proposal, (a) Viacom is offering in the Viacom Offer to
purchase 61,607,894 shares of Common Stock, or such greater number
as equals 50.1% of the outstanding shares of Common Stock, at a
purchase price of $105.00 per share in cash, and (b) following
completion of the Viacom Offer, in accordance with the form of
Agreement and Plan of Merger, between Viacom and Paramount (the
"Form Viacom Merger Agreement") that is attached to the Exemption
Agreement, dated December 22, 1993, between Viacom and Paramount
(the "Viacom Exemption Agreement"), Paramount would be merged into
Viacom in the proposed second-step merger between Viacom and
Paramount (the "Viacom Second-Step Merger"; collectively with the
Viacom Offer, the "Viacom Two-Step Transaction"), and each share of
Common Stock not purchased in the Viacom Offer (other than shares
of Common Stock held in the treasury of Paramount or owned by
Paramount or any direct or indirect wholly-owned subsidiary of
Paramount or Viacom) would be converted into the right to receive
(1) 0.93065 shares of Class B common stock of Viacom (the "Viacom
Class B Common Stock") and (2) 0.30408 shares of a new series of
Viacom cumulative convertible exchangeable preferred stock (the
<PAGE>
"Viacom Merger Preferred Stock") (the aggregate consideration
payable to Stockholders pursuant to the Viacom Offer set forth in
clause (a) and the aggregate consideration payable to Stockholders
pursuant to the Viacom Second-Step Merger set forth in subclauses
(1) and (2) of clause (b) is collectively referred to as the
"Amended Viacom Transaction Consideration").
Lazard Freres & Co. has from time to time acted as financial
advisor to Paramount and has acted as its financial advisor in
connection with proposed Viacom Two-Step Transaction and proposed
QVC Two-Step Transaction. As you know, a General Partner of our
firm is a member of Paramount's Board of Directors. In addition,
we have from time to time in the past provided, and we are
currently providing, in matters unrelated to Paramount, financial
advisory or financing services to one or more of the respective
equity investors in Viacom and QVC, or persons engaged in pending
transactions with one or more of such investors, and we have
received, or expect to receive, fees for the rendering of such
services. In connection with our opinions set forth in this
letter, we have, among other things:
(i) reviewed the terms and conditions of (a) the written
proposal submitted by QVC on December 20, 1993, Amendment Number 21
to the Tender Offer Statement Schedule 14-D1 filed by QVC on
December 23, 1993, and the QVC Merger Agreement (including the form
Exemption Agreement between QVC and Paramount attached thereto) and
(b) the Viacom Proposal, the Viacom Tender Offer Statement and the
Viacom Exemption Agreement (including the Form Viacom Merger
Agreement attached thereto);
(ii) reviewed the terms and conditions of the Blockbuster
Merger Agreement and the Blockbuster Subscription Agreement and
analyzed the Viacom Proposal both with and without giving effect to
the consummation of the proposed merger between Viacom and
Blockbuster contemplated by the Blockbuster Merger Agreement;
(iii) analyzed certain historical business and financial
information relating to Paramount, Viacom, QVC and Blockbuster,
including (a) the Annual Reports to Stockholders and the Annual
Reports on Form 10-K of Paramount for each of the fiscal years
ended October 31, 1988 through 1992, the Transaction Report on Form
10-K of Paramount for the period from November 1, 1992 through
April 30, 1993 and Quarterly Reports on From 10-Q of Paramount for
the quarters ended January 31, April 30 and July 31 for each of the
same fiscal years and for the quarters ended January 31, April 30,
July 31 and October 31, 1993, (b) the Annual Reports to
Stockholders and the Annual Reports on Form 10-K of Viacom for each
of the fiscal years ended December 31, 1988 through 1992, and
Quarterly Reports on Form 10-Q of Viacom for the quarters ended
March 31, June 30 and September 30 for each of the same fiscal
years, and for the quarters ended March 31, June 30, and September
30, 1993, (c) the Annual Reports to Stockholders and the Annual
Reports on Form 10-K of QVC for each of the fiscal years ended
January 31, 1989 through 1993, and Quarterly Reports on Form 10-Q
<PAGE>
of QVC for the quarters ended April 30, July 31 and October 31 for
each of the same fiscal years, and for the quarters ended April 30,
July 31 and October 31, 1993 and (d) the Annual Reports to
Stockholders and the Annual Reports on Form 10-K of Blockbuster for
each of the fiscal years ended December 31, 1988 through 1992, and
Quarterly Reports on Form 10-Q of Blockbuster for the quarters
ended March 31, June 30 and September 30 for each of the same
fiscal years, and for the quarters ended March 31, June 30, and
September 30, 1993;
(iv) reviewed certain financial forecasts and other data
provided to us by Paramount, Viacom, QVC and Blockbuster relating
to their respective businesses (except in the case of Paramount,
financial forecasts for fiscal year 1993 only, having been advised
that Paramount has not prepared projections beyond fiscal year
1993);
(v) conducted discussions with members of the senior
management of Paramount, Viacom, QVC and Blockbuster with respect
to the business and prospects of Paramount, Viacom, QVC and
Blockbuster and the strategic objectives of each;
(vi) reviewed public information with respect to certain other
companies in lines of businesses we believe to be comparable to the
businesses of Paramount, Viacom, QVC and Blockbuster;
(vii) reviewed the financial terms of certain business
combinations involving companies in lines of business we believe to
be comparable to those of Paramount, Viacom, QVC and Blockbuster,
and in other industries generally;
(viii) reviewed the historical stock prices and trading
volumes of the Common Stock, Viacom Class B Common Stock, QVC
Common Stock and shares of common stock of Blockbuster;
(ix) reviewed the procedures for bidding set forth in the QVC
Merger Agreement and the Viacom Exemption Agreement, in particular
noting the respective provisions therein providing for the
extension of the QVC Offer or the Viacom Offer, as applicable, for
10 business days upon delivery of a Completion Certificate
(referred to in the QVC Merger Agreement or the Viacom Exemption
Agreement, as applicable) by QVC or Viacom, as applicable; and
(x) conducted such other financial studies, analyses and
investigations as we deemed appropriate.
We have assumed and relied upon the accuracy and completeness
of the financial and other information provided by Paramount,
Viacom and QVC to us, and on the representations contained in the
QVC Merger Agreement, and we have not undertaken any independent
verification of such information or any independent valuation or
appraisal of any of the assets of Paramount, Viacom or QVC. With
respect to the financial forecasts referred to above, we have
assumed that they have been reasonably prepared on a basis
<PAGE>
reflecting the best currently available judgements of the
managements of Paramount, Viacom and QVC as to the future financial
performance of Paramount, Viacom and QVC, respectively. In
addition, we have assumed that the Viacom Proposal was made in
compliance with the terms and conditions of the Viacom Exemption
Agreement. Further, our opinions are based on economic, monetary
and market conditions existing on this date.
We have not reviewed any proxy statement or similar document
that may be prepared for use in connection with the proposed QVC
Two-Step Transaction. In accordance with the Procedures for
Submissions of Proposals established by Paramount's Board of
Directors on December 13, 1993, Paramount's Board of Directors on
December 13, 1993, Paramount's Board of Directors has authorized us
to respond to inquiries with respect to Paramount from prospective
bidders (in addition to QVC and Viacom) and to receive proposals
from additional bidders, if any. We have not, however, solicited
third party indications of interest in acquiring all or any part of
Paramount.
As part of our analysis, we have continued to evaluate the
transactions, as we have in the past, not only on the basis of
current market values but also applying other financial valuation
methodologies generally applicable to transactions of this type.
These financial valuation methodologies produced conflicting
results and accordingly were inconclusive in the aggregate as to
the superiority from a financial point of view of one proposal over
the other and do not in our opinion justify disregarding the
significantly higher market valuation of the QVC Transaction
Consideration.
Our engagement and the opinions expressed herein are solely
for the benefit of Paramount's Board of Directors and are not on
behalf of, and are not intended to confer rights or remedies upon,
Viacom, QVC, any stockholders of Paramount, Viacom or QVC or any
other person other than Paramount's Board of Directors.
Based on and subject to the foregoing and such other factors
as we deemed relevant, including our assessment of economic,
monetary and market conditions existing on the date of this letter,
we are of the opinion that, as of this date, (i) the QVC
Transaction Consideration is fair to the Stockholders from a
financial point of view and (ii) the QVC Transaction Consideration
is superior to the Amended Viacom Transaction Consideration from a
financial point of view.
Very truly yours,
/s/ Lazard Freres & Co.
