Ailing Blockbuster To Sell Stock

Cash Flow Off 15-20%

Unit's Chairman Quits After Only A Year

April 23, 1997|By BLOOMBERG NEWS

NEW YORK -- Viacom Inc. said yesterday that it plans to sell stock in its Blockbuster Entertainment Group to pay off debt and announced that Bill Fields resigned after a year as chairman of the struggling unit.

Viacom, which bought Blockbuster from H. Wayne Huizenga for $8.4 billion in 1994, plans the stock sale as Blockbuster's troubles deepen.

The unit's first-quarter cash flow will drop 15 percent to 20 percent on slow video rentals, the parent company said.

Some investors said the new stock won't fix Viacom's problems. Chairman Sumner Redstone had trumpeted Blockbuster as a cash machine that would pay off its $10 billion debt, mostly from the $9.9 billion purchase of Paramount Pictures in 1994.

Instead, Blockbuster didn't generate the money Viacom had expected and the debt sapped earnings, cutting Viacom's stock price in half.

"Blockbuster has been a disaster for Viacom," said Fred Moran, an analyst at Furman Selz LLC.

Jessica Reif, a Merrill Lynch & Co. analyst, valued Blockbuster at about $4.6 billion, a 38 percent decrease in three years.

Viacom's Class B stock fell $3.75 to $27.25, while its Class A stock fell $3 to $27.375.

New York-based Viacom said the shares it plans to sell will be tracking stock, which will reflect Blockbuster's earnings.

Viacom said it will keep a majority of the new Blockbuster shares. The stock sale will be early next year through an initial public offering, Viacom said. Viacom wouldn't say how much it expects to raise in the sale.

"I don't know who is going to buy the tracking stock," said Andrew Sandler of Sandler Capital Management, which owns shares of Viacom. "This is not a good company."

The new stock will enable shareholders to "better capture the value of all of Viacom's businesses," said Redstone in a statement. He owns 28 percent of the equity in the company and 67 percent of the voting rights.

The stock sale may boost Viacom's price-to-earnings multiple, which would help increase the stock price, analysts said.

Redstone lured Fields from Wal-Mart 13 months ago to bring retail expertise to the chain of 5,300 video stores and 500 music outlets. At the time, Redstone said Fields would lead the unit's overseas expansion along with developing new products and strategies for merchandising.

Fields, 48, had broadened Blockbuster's marketing and product mix before he left by mutual consent, Viacom said.

Fields, who was executive vice president and the heir apparent at Wal-Mart, said in a statement that he wanted to return to general retailing.

In the past three years, Blockbuster's business slumped amid stiff competition from major retailers such as Wal-Mart and Circuit City Stores. The chain also lost business because of a drop in major hits coming out of Hollywood, analysts said.

The slump led the company to move its headquarters to Dallas in a cost-cutting move and closing of 50 Blockbuster Music stores. The company took a $100 million pretax charge to cover expenses related to the moves.

Other analysts predicted that new management at Blockbuster may seek a quick fix to its balance sheet at the expense of long- term needs.

Pub Date: 4/23/97

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