Viacom Plans to Spin Off Blockbuster Stake

NEW YORK -- Viacom Inc. on Tuesday said it plans to split off its majority stake in Blockbuster Inc. to shareholders, ending years of failed attempts to sell the growth-strapped video rental chain.

Viacom is betting it is better off separating itself from the video rental business, which is a strong cash generator but whose future is clouded by competition from large retail chains like Best Buy and new subscription services like Netflix.

Analysts said the split-off would eliminate some uncertainties that have raised concerns about Viacom's outlook. Shares in Viacom, which owns CBS television network, Paramount Studios and MTV, rose about 3 percent on the news.

"The split-off of Blockbuster removes the overhang on the stock," said Richard Greenfield, an analyst at Fulcrum Global Partners.

The transaction, which differs from a traditional spinoff by giving Viacom stockholders the option of exchanging their shares for stock in Blockbuster, would reduce Viacom's number of shares outstanding.

"The share exchange offer is essentially Viacom buying [back its] shares and diluting Blockbuster shares," said David Miller, an analyst at Sander Morris Harris.

Viacom, which reported a fourth-quarter loss on Tuesday as it took a $1.3 billion charge to write down the value of Blockbuster and other assets, said it expects to complete a split-off of its 81 percent stake in Blockbuster by mid-2004.

To sweeten the offer, and prevent holders from immediately dumping Blockbuster shares after the exchange, Blockbuster said it is considering paying a special dividend to Viacom investors who elect to participate in the swap.

Some analysts said such a dividend may not be enough to prevent a sell-off in Blockbuster shares. "The natural [thing to do] is going to be to dump the Block stock," said Dennis McAlpine of McAlpine Associates.

On Tuesday, Blockbuster reported a hefty fourth-quarter loss as same-store sales fell and forecast a 10 percent drop in 2004 earnings per share.