Viacom Gets Blockbuster Payday

Blockbuster (BBI) stockholders will receive $5 per share as part of the video chain's spinoff from parent company Viacom (VIAB), the companies said Friday.

The payment will result in a $738 million tax-free payoff to Viacom, which owns 81.5% of Blockbuster's stock.

Thursday's announcement comes four months after Viacom announced it would shed Blockbuster. The movie-rental chain's profitable yet shrinking business is suffering from competition from mass-market retailers, operators of cable systems and satellite TV services, and entertainment alternatives such as mail-order DVD rental firm NetFlix (NFLX).

Bearish on the synergies between Blockbuster and other Viacom properties such as the Paramount movie studio, Viacom CEO Sumner Redstone has expressed an interest in taking the money tied up in Blockbuster and deploying it elsewhere.

"Viacom's separation from Blockbuster is a major event that begins a new chapter in the Viacom growth story and brings significant advantages for both companies as we pursue our separate paths to success," Redstone said Friday. "Following the split-off, Viacom will devote all its energies and resources into expanding in core areas, particularly the content creation engines that we believe will drive our future performance."

Under the terms of the proposed split-off, Viacom will distribute its interest in Blockbuster through an exchange offer to Viacom shareholders. The companies expect to close the deal by the end of the third quarter.

Viacom stockholders can elect to exchange some or all of their shares of Viacom stock for shares of Blockbuster stock held by Viacom, at a ratio to be set later. While Blockbuster's class A common stock is traded publicly, Viacom currently owns all of Blockbuster's super-voting Class B shares. Some of these shares will be converted to class A stock, says Viacom, and the voting power of the remaining class B shares likely will be reduced.