Paramount Communications Inc.-1993

Question 1

Paramount Communications Inc. is a takeover target due to Paramount’s ownership of assets that complement other media companies who are looking to diversify and round out their entertainment business portfolios. Both Viacom and QVC see the opportunity to incorporate Paramount’s assets and operations into their own which contributes to a sublime synergy value. During this estate, Paramount is a predominant entertainment content producer while Viacom and QVC are major channel owners.

Within the entertainment industry, entertainment contents are distributed through several different channels. Entertainment production companies like Paramount, generate revenues through selling movies and TV series to channel owners like Viacom and QVC. While entertainment channel owners, e.g. Viacom and QVC, depend their revenues on the level of viewership to their entertainment contents. High visibility entertainment contents will increase viewership rate, which in turn, increases advertising sales and subscription fees. Channel owners like Viacom and QVC, can therefore benefit from a merger with Paramount by getting access to higher visibility entertainment contents that can increase viewership rate and thus sales revenues based on the reputation of Paramount’s products. In addition, they seek the primary motive for merger as they can reduce certain costs through combined operations and improved distribution channels as Paramount was experiencing higher outlays and continuous management turnover. These operational problems start to weaken Paramount’s financial performance, which provide Viacom and QVC the right timing to consider a bid for Paramount. Despite of Paramount’s management inefficiency, both Viacom and QVC recognize the opportunities to utilize Paramount’s production competency as a potential growth opportunity for themselves. Thus, with this takeover, they can gain advantage from Paramount’s assets which can be better utilized to facilitate through restructuring the business.

Question 2

We then came to evaluate which of the two firms would make a better fit with Paramount. As mentioned, both Viacom and QVC can certainly benefit from a merger.

Firstly, in a Paramount-Viacom combination, it could create one of the world’s largest entertainment conglomerates with significant shares in cable TV, movies, film distribution, publishing, and sports. They will be better positioned than each of them separately as the combined would adapt and benefit from technological improvement and other developments due to the merger. Besides, this move could enable the sharing of knowledge of international markets and result in a strongly enhanced international presence. It could also bring together their creative talent, intellectual property, managerial resources and trademarks, which could likely to lead to the development of new businesses. This could