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Rival Suitors Both Sweeten Offers For Viacom

March 2, 1987

NEW YORK (AP) _ The $3 billion takeover contest for Viacom International Inc. moved into high gear Monday, with Viacom’s two suitors sweetening their bids for the second time in a week.

The bidders are an investor group led by Viacom senior management, and National Amusements Inc., a closely held theater-chain operator based in Dedham, Mass.

Only last Thursday, the management-led group had unveiled a higher, ″final″ offer for Viacom, a cable-television and broadcasting concern, in response to National’s announcement of a higher offer three days earlier.

A special committee of Viacom’s directors said it would study the latest offers, which are similarly structured.

Under the new proposal from National, which already owns 19.6 percent of Viacom’s stock, each of Viacom’s remaining shares would be exchanged for $42 in cash, preferred stock with an estimated value of $7.50, and an equity stake in a new company to be formed from the acquisition.

After the transaction, current Viacom shareholders would own a combined 20 percent of the new company’s equity.

Previously, National had offered $40.50 a share in cash, preferred stock valued at $6 and the equity interest.

Meanwhile, the management-led group - which includes Terrence A. Elkes, Viacom’s president and chief executive - revised its offer to $38.50 a share in cash, preferred stock to be valued at $8.50, and a portion of the new company’s common stock.

The cash portion of the management group’s offer is unchanged from its previous proposal. But the preferred stock value was raised from $8 a share, and the group said the combined equity interest in the new company to be received by Viacom stockholders was raised to 45 percent from 25 percent.

Both suitors also have agreed to assume about $550 million of existing Viacom debt.

In response to the new offers, Viacom’s common stock jumped $2.50 a share to $50.37 1/2 in New York Stock Exchange composite trading. Viacom has 53.4 million common shares and equivalents outstanding.

While both deals appear to be worth upwards of $49 a share, securities analysts said it is difficult to place an exact value on either proposal because of uncertainty about the value of the equity stakes involved.

National, for instance, has argued that the equity Viacom stockholders would receive under its offer is more valuable than the management group’s, mainly because the new company it would form after the acquisition would have less debt on its balance sheet.

National claims it would use less-costly bank borrowings to finance the deal compared with the high-yield ″junk bonds″ the management group plans to mostly use.

But the management group apparently is trying to counter that argument by giving Viacom’s stockholders a bigger percentage of the new company’s total equity, even if the debt portion of its capitalization might be higher than under National’s proposal.

Timing factors also play a role in evaluating the bids. There is speculation the management-led group’s offer is closer to receiving approval from the Federal Communications Commission than National’s bid - meaning Viacom’s stockholders would get paid sooner for their stock.

Yet National, seeking to offset that apparent edge, has said that if its takeover of Viacom is not completed by April 30, it will pay interest on payment due for tendered Viacom shares and will accrue dividends on the new preferred stock to be issued.

Under its latest offer, National said it raised that proposed interest payment to 9 percent from 8 percent.

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