Blockbuster to acquire controlling stake in Spelling

March 09, 1993|By Bloomberg Business News

FORT LAUDERDALE, Fla. -- Blockbuster Entertainment Corp. said it will acquire control of Spelling Entertainment Group Inc. in a $141.5 million stock swap, expanding its reach in home entertainment programming.

Blockbuster, the world's largest home-video retailer, will acquire 48.2 percent of the Los Angeles-based production and distribution company by issuing 7.6 million shares to Spelling's parent, American Financial Corp.

The agreement, expected to close in several weeks, will make American Financial, a Cincinnati holding company controlled by investor Carl Lindner, the third-biggest shareholder in Blockbuster.

The purchase will give Blockbuster access to Spelling's extensive film and television library, including such television programs as "Little House on the Prairie" and "The Love Boat" and the television rights to such feature films as "Basic Instinct" and "Total Recall." In addition, Spelling is producer of the hit television series "Beverly Hills 90210" and its less successful clone, "Melrose Place."

Blockbuster's acquisition comes a month and a half after the company agreed to buy control of Republic Pictures Corp., another distributor of movies and television films.

"We want all the film programming we can get for our video operations," said Wally Knief, a Blockbuster spokesman. "Programming is everything in video retailing."

Blockbuster, of Fort Lauderdale, Fla., also has said it intends to use film libraries to develop programming for cable and pay-per-view television.

Blockbuster shares closed up 12.5 cents, at $18.75. Spelling shares fell 12.5 cents, to $6.875, on volume of 596,300 shares, more than seven times the stock's average daily volume over the past three months.

Blockbuster, which had revenue of $1.2 billion last year, has 3,127 video stores in 48 states and nine countries. Its music division includes 238 Sound Warehouse and Music Plus stores and 15 stores owned in a joint venture with Virgin Retail Group. The company also owns a 35 percent stake in Republic.

Spelling, which had revenue of $193.4 million in the first nine months last year, has hundreds of television series, feature films, live-action specials, mini-series and daytime dramas in its library.

Among other television programs in the library are "Dynasty," "Dallas" and "Twin Peaks." Last year, Spelling bought the television rights to Carolco Television Inc.'s film library, which includes "Terminator 2," "Platoon," and the "Rambo" series along with "Basic Instinct" and "Total Recall."

Blockbuster will acquire the 24.5 million Spelling shares that are owned by American Financial. The Spelling shares will be priced at $5.77 a share, Mr. Knief said. The Blockbuster shares will sell for $18.62 apiece, he said.

American Financial, based in Cincinnati, also will receive warrants to buy another 2 million Blockbuster shares for $25 TC share. The warrants will expire at either the third anniversary of the closing of the transaction or when American Financial owns less than half the Blockbuster shares issued at the closing, whichever comes first.

Under the agreement, the 73-year-old Mr. Lindner, Spelling chairman and chief executive, will step aside, as will his 38-year-old son, Craig, company president. Blockbuster wouldn't say who will replace them.

American Financial, a privately held firm, controls five other public Cincinnati-based companies. They are Chiquita Brands International Inc., a fruit and vegetable producer; Penn Central Corp., an insurance and defense company; Great American Communications Co., which owns television and radio stations; American Financial Enterprises, a holding company; and General Cable Corp., a wire and cable company.

One one analyst said Mr. Lindner probably doesn't intend to hold on to his Blockbuster shares for long.

"This potentially gives Lindner liquidity," said Michael Lamb, an analyst with Wealth Monitors. "It'll be easier to sell his Blockbuster shares than to sell 48 percent of Spelling."

Mr. Lindner's stake, excluding the warrants, will be 4 percent of Blockbuster's 190 million shares.

At an analysts' briefing in Boca Raton, Fla., yesterday, Blockbuster Chairman H. Wayne Huizenga held out the possibility that the company would buy the remaining 52 percent of Spelling at some point, said Kemp Fuller, a vice president at RAS Securities Corp.

Mr. Huizenga also said the company intended to use its formidable cash flow to finance other film and entertainment acquisitions in the near future, Mr. Fuller said.

"He said there might be an announcement in April of some formal relations between Blockbuster and the Florida Marlins," the expansion professional baseball team that Mr. Huizenga owns, Mr. Fuller said.

The company estimated in December it would generate net free cash flow of $1 billion in the next three years.

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