Tele-Communications Inc. Eyes Alliance with Blockbuster

Strategic Insights -

Tele-Communications Inc. is reportedly exploring the possibility of forming an alliance with Blockbuster Entertainment Corp. amid uncertainty surrounding Viacom Inc.'s acquisition of the video rental chain. The development comes as Blockbuster shareholders are set to vote on the deal in May, with many expressing concerns over the proposed price tag of around $5 billion. Meanwhile, Viacom's stock has taken a hit due to the planned issuance of new shares and debt to finance the acquisition, with shares dropping by about 35 percent since the deal was announced.

Key Takeaways:

  • Tele-Communications Inc. (TCI) is considering an alliance with Blockbuster Entertainment Corp., potentially forcing Viacom Inc. to improve the terms of its proposed $5 billion merger.
  • The value of the Viacom-Blockbuster deal has decreased from $7.5 billion to $5 billion due to declines in Viacom's stock price and the issuance of new shares and debt.
  • Blockbuster shareholders, who are set to vote on the deal in May, have been protesting the current value of the offer.
  • TCI chief John Malone has a history of seeking acquisitions, including potential stakes in Hollywood studios owned by Matsushita Electric Industrial Co. and Sony Corp.
  • Viacom was sued by TCI last year in an antitrust case related to TCI's support of QVC's hostile bid for Paramount Communications Inc.
  • Blockbuster's 4,000 retail outlets and relatively small debt load make it an attractive asset for Viacom to help pay the interest costs on its $10 million Paramount acquisition.

Statistics:

  • The value of the proposed Viacom-Blockbuster deal has decreased by $2.5 billion, from $7.5 billion to $5 billion.
  • Viacom Class B stock has declined by about 35 percent since the Blockbuster deal was announced.
  • Blockbuster Entertainment Corp. has 4,000 retail outlets.
  • Viacom plans to issue new shares and debt to finance the acquisition, diluting the value of existing shares.

Sources:

  • "Wall Street Journal"
  • "Denver"
  • Reference to an unnamed Wall Street traders' belief
  • Value of the deal as reported by "The Wall Street Journal"