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Paramount Case

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Submitted By sophie1013
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Paramount Communications Inc.-1993

Strategy 1) Why is Paramount a takeover target?
Paramount is among the six “Mayors”, has a series of entertainment programs—almost every aspect (e.g. film & TV Production, film library, film distribution, film exhibition, cable network television stations and theme parks)
However, since it failed to takeover Time Inc. Paramount cannot manage its assets efficiently, and net income declined in 1993 compared with 1990. Besides, Paramount CEO, Davis had a reputation of toughness and of clashing with Diller. In all, Paramount’s performance can be improved and the its management should be changed.

Why is Viacom interested?
Benefits: Create one of the world’s largest entertainment conglomerates * Create synergies among the assets—complementary and both well-known business * Lead to development of new businesses--Bring together creative talent, intellectual property, managerial resources and trademarks * Cost reductions—combination of similar businesses and economies of scale * Enhance distribution capabilities—cross-promotion and utilization of brand names, utilization of distribution capabilities * Pursue international business strategies—share knowledge of international markets and enhance international presence.

Why is QVC interested? * Diller once ran Paramount Pictures * Diller may change the way Paramount did business--increase cash flows and lower average costs. Or even he would start a new television network * New television channels or fifth television network.

Valuation 2) Estimate Paramount’s current value as a stand-alone on a per share basis * Comparable-based
Walt Disney and Time Warner are comparable to Paramount, choose the 1993 multiples
Average=(13.3+11.2)/2=12,25
1993 EBITDA of Paramount is 560.5
MV(Paramount)=560.5*12.25=6866.125

* DCF-based FCF |

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