Paramount Communications Inc. - 1993

Abstract

SUBJECT AREAS: Valuation; mergers and acquisitions.

CASE SETTING: 1993, Entertainment Industry. 

This case studies the takeover contest between Viacom and QVC for Paramount Communications. The Paramount 1993 case focuses on the events and situation leading up to the initial bid for Paramount by Viacom in September of 1993. Paramount 1993 has two primary roles.

First, I have used Paramount 1993 successfully with MBAs and executives as a comprehensive valuation case. It should be taught after the students have been exposed to different valuation methodologies and, preferably, after they have worked through a simpler valuation case (or cases). With the information provided in the case, the students can perform discounted cash flow (DCF) valuations using the Adjusted Present Value (APV) method and the Weighted Average Cost of Capital (WACC) method. The case also exposes students to multiple valuation methods -- trading multiples and transaction multiples -- commonly used by investment bankers to value companies. The case, therefore, can be used to discuss the pluses and minuses of these different methods.

Second, the case provides a vehicle to discuss the potential benefits from a strategic acquisition. The case is designed to force the students to understand that there are benefits only if the combined companies will act differently than they would if they remained independent. Given the huge egos involved, the case also provides a good forum for a discussion of managerial motives and private benefits of control.

JEL Classification: G34, L82