Stock Market and Paramount

2278 WordsFeb 2, 200910 Pages
Paramount Communications Inc. Question 1 Paramount is a takeover target because other firms see synergy value associated with combining Paramount’s assets and operations with their own. Specifically, Paramount has several assets that complement other media companies. Value in the media is generated through several different channels. As a media company, Paramount has a presence in most of the entertainment sectors (see Exhibit 2). There seems to be a drive toward consolidation and several industry members are looking to diversify and round out their entertainment business portfolios. During this period Paramount was also experiencing increasing costs and continuous management turnover, which were starting to diminish financial…show more content…
Specifically, it would be able to reduce some of the content distribution and promotional costs. Viacom and Paramount would also have some redundant/overlapping businesses that can be consolidated. Depending on which one is performing better, the other one can be cut or sold off. Economies of scale would also play a large part in reducing costs as overhead costs can be better spread across. Due to cross promotion and distribution, Viacom can incite growth in Paramount. Paramount’s content would automatically be worth more based on new distribution channels. Additionally, Viacom has plans to utilize Paramount’s movie production competencies to produce films such as Beavis and Butthead, which would due to their huge popularity almost certainly generate growth and profit. If QVC purchased Paramount, some of the cost saving opportunities would not necessarily be there based on the fact that the business are not as closely aligned. However, there would be cost saving and growth opportunities through the new distribution channels through TCI that Paramount could tap into. TCI has a huge cable network that would create many new options for Paramount’s content. Question 5 Due to the synergies (referenced in questions 2 and 4), paramount is worth an additional $15.90 per share in addition to the WACC value of $63.54 per share, for a total value to Viacom of $79.44 per share (see Exhibit 20). This value represents a 25 percent premium to our WACC valuation.

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