Viacom's Blockbuster Buyout Faces Growing Opposition from Investors and Analysts

Strategic Insights -

Institutional investors and analysts have been increasingly skeptical about Viacom's proposed buyout of Blockbuster Entertainment Corporation, a sentiment reflected in a rise in Blockbuster's stock price last week. Analyst Craig Bibb of Paine Webber Inc. expressed pessimism about the deal, and investors are now betting that either the deal will collapse or Viacom will sweeten its offer. The current market price of Blockbuster stock is roughly 25% above the value of Viacom's current offer, indicating a strong opposition to the deal in its current form.

Key Takeaways:

  • Analyst Craig Bibb of Paine Webber Inc. is pessimistic about the deal's prospects, citing the 25% discount of Blockbuster's current stock price from Viacom's offer.
  • Blockbuster shareholders are pressuring management to renegotiate the deal, citing Viacom's declining stock price in the battle for Paramount Communications Inc.
  • The merger would consolidate Blockbuster's $1.25 billion in debt into the merged company, making it a liability of the combined entity.
  • Liberty Media Corporation, controlled by John C. Malone, might invest in Blockbuster to strengthen its stock and potentially block the Viacom buyout.
  • Viacom's purchase of Paramount Communications Inc. is still pending, with a required payment of $107 per share for 50.1% of Paramount shares.

Statistics:

  • Viacom's offer for Blockbuster is estimated at $21 per share.
  • Blockbuster's current stock price is $26.25, with a gain of $1.75 for the week.
  • The share price indicates that investors believe the deal will either collapse or be renegotiated.
  • Viacom's stock price has dropped in the battle for Paramount Communications Inc.
  • Blockbuster is set to invest $1.25 billion in Viacom's shares to help finance the purchase of Paramount.

Sources:

  • UPI (United Press International), "Viacom, Blockbuster Merger Faces Opposition"
  • Wall Street Journal, "Viacom Stock Slumps Amid Concerns Over Paramount Deal"