Viacom to hold Blockbuster
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March 28, 2001: 12:39 p.m. ET
Media company to abandon spinoff for video-rental unit, citing sales gain
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NEW YORK (CNNfn) - Media conglomerate Viacom Inc. confirmed Wednesday that it is abandoning plans to split off its Blockbuster Inc. unit, saying the video-rental chain's business has turned around so well of late that it wants to keep it.
Viacom has been waiting more than a year for Blockbuster's stock to recover before proceeding with plans to spin off the remaining 82.3 percent of the publicly traded unit. But a significant improvement in the division's core video-rental business prompted Viacom to ditch the plan and hang onto Blockbuster, the company said.
"Blockbuster has been picking up market share and growing the business," Viacom president Mel Karmazin told the Wall Street Journal in Wednesday's edition, adding that Viacom was "very enthusiastic about its future prospects."
Viacom is expected to make its plans official in a filing with the U.S. Securities and Exchange Commission in the next couple of days.
A company spokeswoman declined to comment Wednesday on whether Blockbuster's about face would prompt Viacom to offer to buy the 17.7 percent of Blockbuster stock outstanding that is owned by the public, to make it easier to tap into the chain's newfound profitability.
Viacom had initially hoped that when it acquired Blockbuster in 1994 it would help pay for the Paramount Communications acquisition that same year. But Blockbuster proved a drag on the company's profit as the video-rental business stalled, and the unit depleted its cash on opening new stores.
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Viacom sold a minority stake in Blockbuster (BBI: Research, Estimates) to the public in August 1999 through an initial public offering. But it attracted little investor interest given Blockbuster's weak performance and loss of market share.
However, the chain has managed to stage a comeback. The stock remains under $20 a share, a benchmark Viacom set for spinning off the remainder of the company, but has overtaken its IPO price of $15 a share within the last year.
John Antioco, who took over as chief executive of Blockbuster in mid-1997 and is credited with overseeing the comeback, said Blockbuster's U.S. market share has risen to 36 percent at the end of last year from 26 percent in 1997. He said the company expects Blockbuster's share to approach 40 percent by the end of this year and to rise to 50 percent over the next three years, according to the Journal.
Viacom (VIA: Research, Estimates) shares fell $2.25 at $44 in Wednesday afternoon trading. Blockbuster's shares gained 75 cents to $14.05.
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