Some institutional investors sold their Paramount Communications Inc. stock, taking their profit now and letting arbitrageurs and other more speculative shareholders sort out the potentially few remaining dollars of profit in the complex, dramatic final bids for the company.
"This is a situation in the hands of the arbitrageurs, who speculate on deals like this," said David Santry, senior vice president and director-research, Boston Co. Institutional Investors Inc. Boston, "We sold our shares," he said, before Viacom Inc. and QVC Network Inc. submitted Feb 1. their final bids, both a complex package of cash and securities.
As of Sept. 30, Boston Co. owned 283,000 shares of Paramount.
"We made a nice profit," he added.
"There's uncertainty on what the final price might be. We don't want to hang around for the last few dollars. There's no certainty these deals will go through."
Arbitrageurs "are there to take that risk. We don't like to do that."
The Florida Board of Administration, with a $38 billion pension fund, already has unloaded part of its Paramount position to take a profit. It sold from internally managed accounts about 40,000 shares of Paramount just before the final bidding.
"We'd rather move on and get it (the proceeds) reinvested," said Lan Janecek, chief of equities.
But the fund still is holding 30,000 shares for artibrage, he added. The stock is contained in an internally run, $350 million special situation portfolio, used for thematic investing as well as arbitrage.
For those shares, he said, "We're going to wait until the bitter end to see what happens. We'll go down to the bitter end."
Mr. Janecek suggests QVC's bid has perhaps a $2 edge over Viacom's package. "But you get better back-end protection with Viacom," he said, so it's still not clear which bid has the ultimate edge.
He suggested the possibility that neither company will get a majority, forcing new bidding.
At Oppenheimer & Co., New York, Jessica Reif, Paramount analyst, suggested the bidding was for arbitrageurs. Unless they are arbitraging, she said, "we told our people to sell Paramount and invest in Disney or News Corp.
"I'm not on the arbitrage side."
The value of the opposing bids "changes every single day as the stock prices (of Viacom and QVC) change," she added.
Renaissance Investment Management Inc., Cincinnati, sold its Paramount shares without waiting for the denouement in the takeover drama, said Michael E. Schroer, director-research.
"Both deals (Viacom and QVC) included a fair amount of equity," he said. "With Viacom and QVC stock prices declining and the price of Paramount rising, and discretion being the better part of valor, we decided to take our profits."
Renaissance sold 380,000 shares in mid-November for about 81, after buying in mid-July near 50.
"We were afraid the plunge in QVC and Viacom stock would negate any gain," he added.
With neither company delivering a knockout bid, both Viacom and QVC left the outcome in suspense in the dramatic, final bidding for Paramount Communications Inc.
Shareholders have until Feb 14 to select one of the complex bids, when they expire. The winner has to obtain at least a 50.1% majority of Paramount's 120 million shares outstanding by then to win the contest for Paramount, under the rules set by the company for the bidding.
"If neither gets it, it's back to square one," said Richard Keilbach, investors relations executive, Georgeson & Co., New York, which is representing Viacom.
A day after the final bids were submitted, Paramount announced it expects to report a net loss of about $35 million to $45 million for its fiscal third quarter, ended Jan. 31. The loss, it said, largely is due to a charge related to a year-end revaluation of program inventories at USA Network, jointly owned by Paramount and MCA Inc., as well as unexpected softness in its holiday motion-picture releases.
In the comparable quarter in 1993, Paramount recorded a net loss of $66.8 million to reflect a one-time charge of $66.9 million for post-retirement benefits under Financial Accounting Standard 106.
In its bid, Viacom is offering $107 per share for 50.1% of Paramount's shares. For the other 49.9% of Paramount, it is offering a package of five securities.
QVC, in its bid, is offering $104 a share for 50.1% of Paramount's shares and a package of common and preferred stock for the other 49.9%.
Placing a value on the bids is "going to be hard to do," said Georgeson's Mr. Keilbach. "It's very difficult."
For the previous bids, shareholders had slightly favored Viacom.
As of Jan. 31, they submitted 22.7 million shares to Viacom and 19 million shares to QVC. With the new bids, shareholders can, up to Feb. 14, change their submissions.
On Feb. 2, Paramount stock closed at 78, down 17/8 from its close of 797/8 Tuesday.
Viacom Class B, the principal voting stock, which is included in the package the company is offering in its bid, closed at 331/2, down 5/8 from its Tuesday close of 341/8.
QVC closed at 463/4, up 2 from its Tuesday close of 443/4.
With about 120 million shares outstanding, Paramount has a market value of some $8.585 billion.