The proposed merger of CBS Inc. and QVC Inc. has some CBS shareholders clamoring for a higher price and some QVC investors wanting to be left alone.
Bob Beck, a senior portfolio manager at Putnam Investments, Boston, said the deal will be good for both companies, but the CBS stock is worth more than the $175 in cash and the 0.4009 of a share of new CBS common stock investors would receive in the new deal. CBS stock, currently at $310 is probably worth $400, Mr. Beck said.
Other institutional investors think the bidding war has just started. With CBS stock jumping 19% on the day of the June 30 announcement, some experts speculated other bidders were not far behind.
"CBS is really a premier brand name," Mr. Beck said. "It has very valuable assets, so it wouldn't surprise me to see someone else go after CBS."
Michael Mahoney, a portfolio manager for G.T. Capital Management, San Francisco, said he purchased QVC shares this year because it had a special niche in the market and because of the home-shopping company's high growth rate. G.T. has 446,000 shares of QVC.
"It's sad that the pure play on QVC will disappear," Mr. Mahoney said. "I probably would've made more money without CBS."
In the deal, QVC stockholders would get 0.0486 of a share of new CBS common stock and 0.1931 of a share of new CBS non-voting convertible preferred stock. QVC shareholders would own about 46.4% of CBS on a fully diluted basis, where CBS stockholders would own about 53.6%.
But despite a sales increase of 14% last year, QVC has remained an unpopular stock with institutional investors. According to data from CDA Investment Technologies Inc., Rockville, Md., institutions own 33% of the outstanding QVC shares, vs. 89% of CBS.
One of the major reasons QVC isn't an institutional favorite is because of the heavy ownership by cable television and media companies. According to QVC's May 1994 proxy statement, major owners include: Comcast Corp., Philadelphia; BellSouth Corp., Atlanta; Liberty Media Corp., Englewood, Colo.; and Time Warner Inc., New York.
In addition, QVC is not included in the Standard & Poor's 500 Stock Index, and therefore is not included in the index funds of institutional investors.
What's more, investors said QVC, incorporated in 1986, is too volatile for inclusion in their portfolios.
Many experts said QVC Chairman and Chief Executive Officer Barry Diller never intended to have his company stand alone. Last year, QVC lost a bidding war with Viacom Inc. over Paramount Communications Inc.
Shareholders "more or less gave (Mr. Diller) the keys to QVC," said John Reddan, a media/communications analyst at Moran & Associates, Greenwich, Conn.
"Especially after the Paramount takeover battle, it was a matter of time before Barry Diller was going to try something else."
"QVC is Barry Diller and what Barry Diller wants it to be," added John Reidy, a media analyst for Smith Barney, New York. QVC "isn't worth much without Barry Diller."
Despite the discrepancy between institutional favoritism on the stocks, several experts said the new company would remain a top pick for institutional investors.
Several investors said CBS needed to keep up with competitors that already have branched into cable television. Also, CBS needed an aggressive manager like Mr. Diller, who made QVC the largest home-shopping television network. The combination of the two companies, with Mr. Diller as president and chief executive officer, would make a good fit, experts agreed.
"I don't think that there is any doubt about it, and I think that it will become a favorite retail stock," Mr. Reidy said. "What's changed is that there will be more cash flow and a great leader."
But looking at the deal from a credit-rating perspective, Albert Turner, vice president and analyst for Duff & Phelps Credit Rating Co., Chicago, said long-term advantages to the new combination remain unclear.
Duff & Phelps recently placed CBS on a rating watch for a potential downgrade because of the merger. Mr. Turner said CBS will have to borrow more than $1.5 billion to pay out the stockholder dividend, which is expected to total $2.9 billion.
Still, Anthony Gray, chief investment officer at Sunbank Capital Management N.A., Orlando, Fla., said the new company would be popular with institutional investors. Mr. Gray said Sunbank holds 49,000 CBS shares; the firm will buy more if the stock drops to $290 and will sell if it jumps to $330.
"I think people like this kind of stock ... There's definitely something happening here," Mr. Gray said.
