Blockbuster Offer Is Called a Success

Media giant Viacom Inc. moved a step closer Wednesday to splitting off its struggling Blockbuster Inc., announcing that a stock-exchange offer for the video rental chain was oversubscribed.

New York-based Viacom had offered its shareholders a sweetener -- a premium of as much as 16% -- to exchange their shares for those of Blockbuster. When the exchange offer expired Tuesday, more than 294.9 million shares had been tendered -- nearly 10 times as much stock as Viacom could accept, the company reported.

Viacom had earlier warned that it could lose up to $1.2 billion if the swap offer failed to attract enough subscribers.

The success of the offer clears the way for Viacom, which owns CBS, Nickelodeon and Paramount Pictures, to dispose of its entire 81.5% stake in the video chain. That transfer is expected during the next seven days.

In February, after failing to find a buyer for the Dallas-based video chain, Viacom announced plans to “split off” Blockbuster to its shareholders.

At the time, Viacom took a $1.3-billion charge against earnings because of the declining value of Blockbuster, which operates nearly 9,000 stores. Analysts polled by Thomson First Call have estimated third-quarter earnings will fall 71% to $18.4 million, or 12 cents a share.

The chain’s sales have been hurt by heavy competition from mass merchants selling DVDs such as Wal-Mart Stores Inc. and Web-based movie services such as Netflix Inc.

Wednesday’s announcement was warmly received by Viacom investors and analysts.

“Cleary, this is a step in the right direction for Viacom,” said Richard Greenfield, an analyst with Fulcrum Global Partners. “For investors who’ve continually worried about Blockbuster’s drag on Viacom’s growth, that concern is eliminated.”

To entice its shareholders to participate in the stock exchange, Viacom offered shareholders 5.15 common shares in Blockbuster for every one share of its Class A or Class B shares.

Viacom agreed to exchange 28 million of its shares for 72 million shares each of Class A and Class B Blockbuster shares. The final results of the exchange offer will be announced by Oct. 13.

After the stock exchange is completed, Viacom is expected to begin some large scale stock buybacks.

Viacom’s class B shares rose 32 cents to $35.77 on the New York Stock Exchange. Blockbuster’s shares closed at $8.04, up 20 cents, also on the NYSE.