1.) On December 14, Paramount’s board dropped the merger agreement with Viacom and agreed to hold an auction for control of Paramount. The implication of this move was that although Paramount would endorse one of the two bids, the shareholders' tender decisions ultimately would decide the winner.
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3.) (Refer Chart “Stock Price Movements” in appendix.) Before the announcement, (on September 7), Paramount stock traded at $55.875 per share. From that point, Paramount stock reached $64.50 on September 13 (day of the announcement) and finished at $63.125 on September 14. These movements imply that market reacted favourably to Paramount. However, the market reacted unfavourably to Viacom. From September 7 to 14, Viacom Class A stock fell from $66.125 to $61.50, and Viacom Class B stock declined from $59.25 to $55.375 over the same period. S&P 500 did not move over the same week. On September 20, QVC announced its plan to acquire Paramount. The market's reaction to this announcement was negative; QVC’s stock price dropped from $59.50 on September 17, to $56 on September 20. The decline in prices of Viacom and QVC meant that market expected them to overpay for paramount. Court’s ruling on Nov 23 increased the probability that QVC would be the winning bidder. Hence, price of Viacom’s Class A and Class B stock rose by $3 each, while that of QVC declined by $1. On January 7, 1994, Viacom announced a $9.4 billion merger with Blockbuster Entertainment, and consequently, a new bid for Paramount. The market prices reflected the consensus that both firms were overpaying for Paramount. The probability of Viacom winning control increased; Viacom A shares fell from $47 per share to $46.1 while B shares fell from $41 to $38.25. Meanwhile the probability of QVC winning declined; QVC shares increased by $1.1. As the competing firms, Viacom and QVC, increased their bets, their probability of winning increased, and consequently their market prices fell. On February