Paramount’s Board Stands Firm in Favor of Viacom Bid : Entertainment: But shareholders appear evenly divided between the suitor and its rival, QVC.

The board of Paramount Communications Inc. on Friday reiterated its endorsement of a takeover bid from Viacom Inc., leaving rival suitor QVC Network Inc. with few options in the face of a Feb. 14 deadline when the competing tender offers expire.

Despite the board action, which was expected, Wall Street analysts said Paramount shareholders still appear split nearly down the middle about whether to accept Viacom’s offer or the QVC bid.

Longer-term investors, which include institutional holders such as pension and stock funds, apparently favor the QVC bid, while shorter-term holders such as stock arbitragers and hedge funds back the Viacom offer because it is offering a higher upfront cash payment.

This week, both Viacom and QVC submitted revised, final bids for Paramount. QVC is offering $104 per share for 50.1% of Paramount, compared to Viacom’s offer of $107 per share. But Wall Street puts a greater value on QVC’s package of securities for the remaining 49%.

“We’re heading to a standoff here,” said Lisbeth R. Barron, an analyst with S.G. Warburg Securities. “It’s up to (QVC Chairman Barry) Diller over the next week to convince shorter-term holders that his stock can hold up at above $40. If he can do that, he has a good chance.”

One possible tactic mentioned is that BellSouth Corp., which will invest $2 billion in QVC if it is successful in acquiring Paramount, would commit to buy QVC shares after the merger to help prop up QVC’s stock price, which, like Viacom’s, is expected to fall upon consummation.

However, one knowledgeable source said the strategy, while considered, was not satisfactory to the arbitragers because regulatory hurdles would delay any such tactic. There may also be concern that such a move would provoke a lawsuit from Viacom, one source said.

Instead, QVC’s strategy appeared to be to discredit Viacom’s bid and its proposed merger with Blockbuster Entertainment Corp. in a campaign to enlist Wall Street support for its offer. QVC’s advisers were playing up the notion that only Diller has the skills to turn Paramount around and that one of Viacom’s key cash-generating assets, MTV, faces costly competition from a new music video channel to be launched by Time Warner, Sony, PolyGram and Thorn-EMI.

Still, Viacom on Friday had the edge over QVC as shareholders were drawn to the higher immediate returns contained in its offer. “At this point, the market says it’s Viacom,” said one major Paramount shareholder.

Paramount Chief Executive Martin S. Davis urged bidders in a statement to “end the auction process” even if neither QVC nor Viacom wins 50.1% of Paramount’s shares by the Feb. 14 deadline, because the five-month takeover battle is now posing “material risks” to the studio and publishing company and will have an “adverse impact” on Paramount.

Paramount stock fell $1.625 to $76.50, its lowest level in 10 weeks. Shares of QVC stock dropped $2 to $43.875. Viacom Class A stock dropped 62.5 cents to $37.875 and its Class B stock fell $1.125 to $32.875. BellSouth stock dropped $1.875 to $56.625.

Ironically, the Paramount board’s endorsement came the same day that the Delaware Supreme Court released its full, 51-page decision detailing why it backed a lower court’s ruling that forced Paramount to the bargaining table with QVC. In that decision, the court ruled that Paramount could not ignore QVC’s bid because its friendly deal with Viacom represented a change in control of the company.