Why Is Paramount a Takeover Target?

1. Why is Paramount a takeover target?

Paramount  has been very successful in generating syndication revenues. However, due to the high management turnover, it slowed down the movie schedule. Therefore, this could crush the company’s results and the profit would be influenced. While Paramount is a predominant entertainment content producer and Viacom and QVC are major channel owners. The takeover could diversify and round out their entertainment business portfolio..

2.  Which of the two firms - Viacom or QVC - would make a better fit with Paramount? Which would Paramount management, i.e., Martin Davis, prefer, if it had to choose?

Viacom would  make a better fit because their businesses were highly complementary to each other and both of them were world-renowned companies. Also, the combination could not only bring many intellectual assets but also the trademarks for each other which would lead to the development of new business. The combination could be expected to enable the sharing of knowledge of international markets and to result in a strongly enhanced international presence.

However, for merging of Paramount and QVC, it seems hard for them to re-collaborate  with each other because Martin Davis , the CEO of Paramount had clashed with Barry Diller before. It is possible they cannot reach to an agreement in the future if the work together. Also, it was likely that Diller would change the way Paramount did business and sell the theme parks and TV stations to focus on programming which would likely to lead a disagreement between them.

3.Value Paramount as is (stand-alone value). Compare your valuation to the market price. Are they similar? If yes, why? If not, what might explain the difference?

They are not similar, we were undervalued.  The assumptions are: Market risk premium 5.5%, Growth Rate 5%, 30 year treasury bond as Rf (6.25%), Beta might not actually be 1.00, Rd was assumed from the AA long term debt (7.05%) and tax rate is 34%.

4. What is the maximum amount per share that Viacom would be willing to pay for Paramount? Remember the value of Paramount to Viacom is the stand-alone value plus expected synergies and tax shields.