Blockbuster Fuels Viacom’s Bid for Paramount : Mergers: It agrees to invest $600 million; Cox Enterprises may raise $600 million more to thwart Barry Diller’s competing offer.
Blockbuster Entertainment Corp. has agreed to invest $600 million in Viacom Inc. in a move certain to shore up Viacom’s bidding power for Paramount Communications Inc., sources said Tuesday. And Cox Enterprises is in advanced discussions with regional phone companies--predominantly Southwestern Bell--about an additional $600-million investment.
Viacom could use the $1.2 billion in cash to sweeten its $7.8-billion offer, which faces a competing bid from Barry Diller’s QVC Network that is valued at roughly $2 billion more. By bringing in cash-rich partners, Viacom fulfills Chairman Sumner Redstone’s promise not to make a highly leveraged bid for Paramount but to deliver a transaction Wall Street will applaud.
The partners are expected to receive preferred stock convertible into Viacom Class B, non-voting shares at $70. All three companies had been rumored to be potential players in the Paramount bidding but chose not to make direct moves. Meanwhile, Wall Street has steadily pressured Redstone to raise the ante.
Sources said the Blockbuster investment, which may be announced as early as today, will take place regardless of whether Viacom consummates a merger with Paramount.
The Cox partnership would probably be structured in a similar manner, although one source indicated that Cox and its partner could double its $600-million commitment if asked to do so by Viacom. Sources said Tuesday that Southwestern is the likely partner. They noted that the two companies are already partners in a cable TV and phone venture in Britain.
Blockbuster, which had 1992 cash flow of nearly $400 million, is expanding beyond its core video business as a hedge against technological advances expected to someday make the video business obsolete. In the past, however, its investments have been more conservative.
Earlier this month, Blockbuster disclosed that it is financing with $100 million Spelling Entertainment Group’s acquisition of Republic Pictures Corp., in a deal that will give Blockbuster 70.5% of the merged firm.
The Ft. Lauderdale, Fla.-based company rents a whopping 10 million videotapes a week, and its video revenue exceeds that of its next 300 competitors combined. Blockbuster expects to generate $1 billion in cash over the next three years and $2 billion in the next five. In 1992, the company earned $142 million on $1.2 billion in revenue.
Like Blockbuster, Cox has a reputation for caution. It owns the huge advertising sales firm Telerep, whose TPE division produces and distributes “Lifestyles of the Rich and Famous.” It also has a stake in Paramount’s “Entertainment Tonight.”
Cox, best known as owner of the major newspapers in its hometown of Atlanta, is now aggressively expanding. It has linked up with telephone companies on ventures and is expanding its cable TV business, where it is now the sixth-largest company.
Cox is owned by family trusts for Barbara Cox Anthony and Anne Cox Chambers. In 1992, the company earned $209 million on revenue of $2.5 billion.
The Companies at a Glance
Blockbuster Entertainment Corp. and Cox Enterprises Inc. are joining with Viacom to strengthen its bid for Paramount.
* Headquarters: Ft. Lauderdale, Fla.
* Stock: Closed Tuesday at $29.25, unchanged, on NYSE
* 1992 revenue: $1.2 billion
* 1992 profit: $142 million
* Holdings: More than 3,200 video retail stores; 237 Sound Warehouse and Music Plus stores; tentative deal to own 70.5% of Spelling Entertainment Inc., which is buying Republic Pictures
* Headquarters: Atlanta
* Privately held (Stock doesn’t trade)
* 1992 revenue: $2.5 billion
* 1992 profit: $209 million
* Holdings: Five TV stations and 13 radio stations; several major newspapers, including the Atlanta Journal- Constitution; cable TV services with more than 1.7 million subscribers, making it the sixth-largest cable company in the United States
Sources: Bloomberg Business News, U.S. Company Intelligence;
Researched by ADAM S. BAUMAN / Los Angeles Times