The reason has much to do with the difference between deskbound analysts and realworld dealmakers. Using traditional “cash flow” analysis–the money a company can expect to generate over the coming year–Wall Street’s Oppenheimer & Co. reckons that Paramount is worth only $71 a share; UBS Securities puts it at $77. By those figures, QVC and Viacom are indeed overpaying. In fact, though, even at $90 Paramount shareholders might be getting a raw deal.
Paul Kagan Associates, a California research firm, puts the company’s true value at about $100 a share. The reason: Paramount’s performance has been lackluster for years. New management, under QVC or Viacom, could boost cash flow by 20 percent annually. Furthermore, Paramount’s assets–ranging from its huge film and TV library to the Simon & Schuster publishing group to Madison Square Garden and the New York Knicks–will increase in value as cable and phone companies scramble to fill time on their expanding home-entertainment TV empires. At the very least, count on this: no one’s more aware of Paramount’s potential than Viacom and QVC. Both will jump through burning hoops to win without paying top dollar.
