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Viacom Decides to Keep Its Stake in Blockbuster

March 29, 2001|From Reuters

NEW YORK — Entertainment titan Viacom Inc. confirmed on Wednesday that it will scrap plans to spin off its remaining 82% stake in Blockbuster Inc., saying it is happy with the performance of the video-rental unit and wants to keep it in the Viacom family.

A spokeswoman said the company, which owns the CBS television network, Paramount Pictures and MTV, among other entertainment properties, would disclose its plans in filings with the Securities and Exchange Commission in the next few days.

Blockbuster has about 4,800 retail stores nationwide.

A Blockbuster spokeswoman declined to comment on the possibility of Viacom buying back the outstanding 18% of Blockbuster shares, which totaled about 175 million at the end of December.

Viacom took the minority Blockbuster stake public in August 1999 at $15, but it failed to generate much enthusiasm. Company executives said later that year that Viacom would not offer any remaining stock until the shares hit the $20 range.

Blockbuster reached a high of $17 in November 1999 before crumbling against the backdrop of investor belief that technology would dramatically change the movie-distribution business and leave retailers, who rely on customers visiting video stores, in the dust. The shares dropped to a low of $6.88 last October. They closed Wednesday at $14.10, up 80 cents, on the New York Stock Exchange.

The increased popularity of satellite television and new digital cable technology, which compresses cable signals to allow hundreds of cable channels, and the specter of video-on-demand from a variety of services also has scared many investors away from Blockbuster.

But analyst Jeffrey Logsdon of Gerard Klauer Mattison & Co. noted that Blockbuster has made considerable strides.

"The company has dramatically redesigned its capital spending in the last couple of years," he said, citing the retailer's revenue-sharing deals with film studios, in which the company shares video-rental revenue in exchange for cheaper prices for new releases.

Logsdon also noted that the company has cut its new store additions, "which has potentially added between $100 million and $150 million a year in free cash flow."

"With those two elements, Blockbuster becomes a significant cash cow and it becomes perhaps less necessary to have Blockbuster separate," he said.

Viacom's shares dropped $1.85 on Wednesday to close at $44.40 on the Big Board.

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