COMPANY TOWN : Huizenga Punches the Pause Button

Would you buy a used strategy from this man? Blockbuster Entertainment Corp. Chairman H. Wayne Huizenga is apparently set to find out.

With the Viacom Inc. merger in ruins, people close to Blockbuster do not foresee another major alliance in the near term. Instead, they look for Huizenga to refocus on building his worldwide video rental empire, while continuing to diversify into sports and entertainment.

One well-placed source says all of the available suitors have already taken a look at the company and backed off, despite rumored deals involving Walt Disney Co. or one of the Baby Bells. While access to Blockbuster’s cash flow and control of the video rental business are strong lures, the company’s $8-billion to $9-billion price tag appears to be a turnoff.

“What’s attracted people to them is their cash flow, which will grow very rapidly over the next four or five years,” said one Wall Street source. “Another thing that draws people to them like a moth to the flame is the concept of control (of the video rental business). In retailing, that kind of control is like a siren call. But it’s a very expensive merger.”

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Rumors of other partnerships started surfacing earlier this month, when it became clear that the Viacom deal was in serious trouble. The two companies technically have until Sept. 30 to make the marriage work. But with Viacom’s stock still reeling from the impact of its $10-billion purchase of Paramount Communications Inc., hardly anyone expects the deal to go through.

Analysts say Blockbuster is more likely to recoup some of its $1.85-billion Viacom investment--which was critical in helping Viacom defeat QVC Inc. in the battle for Paramount--through small ventures. There’s talk of turning Viacom’s Showtime pay TV network into the “Blockbuster Network” and distributing Viacom video games through the retailer.

Blockbuster declined to comment on its plans, with one company source saying that “only Wayne knows what will happen.” But Chief Financial Officer Gregory Fairbanks denied that annual cash flow--estimated at $650 million to $700 million and growing--will be significantly drained.

The $600 million in Viacom preferred stock that it bought is pretty much a wash since it pays a dividend of about $30 million a year, offsetting payments for debt borrowed to buy the stock, Fairbanks said. The $1.25 billion borrowed to buy 23 million shares of Viacom Class B common stock does drain some money off in interest, although Fairbanks said it’s not enough to hurt the company’s plans.

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“Even with the investment in Viacom, we have the financial resources and cash flow available that would be necessary to finance all of our growth plans as a stand-alone entity,” he said.

That would include such things as building new video stores, financing growing film and television production activity and making acquisitions.

Craig Bibb, an analyst with PaineWebber Inc., estimates it will cost Blockbuster about $88 million to service the debt taken on to buy the $1.25 billion in Viacom shares, which should not be a problem since cash flow has been growing at a strong 30% a year. He agrees that the investment should not hinder expansion.

“The extra debt they need to carry for the Viacom securities is not going to slow them down at all,” Bibb said. “They still will open all the stores they plan to.”

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While Blockbuster’s stock may take some time to recover--its shares sank 75 cents to $25.125 on the New York Stock Exchange on Monday, compared to a peak last year of $34.25 a share--Bibb says he likes the stock’s growth potential. He predicts Blockbuster will return to the strategy of building a diversified family entertainment company.

The company was already on a diversification drive when Viacom came along, having acquired Music Plus and controlling the newly merged Spelling Entertainment and Republic Pictures. With the Florida Marlins baseball team, the Florida Panthers hockey team and as the new outright owner of the Miami Dolphins, Huizenga is one of the nation’s top sports moguls.

Some analysts say Blockbuster will remain a force to be reckoned with.

“They want a vehicle to leverage their distribution strength. They are the largest buyer of Hollywood product on the planet,” Bibb said. He speculated that one of the possibilities could involve buying exclusive video rights for Blockbuster stores. The company is also known to be pursuing deals to co-finance movies with leading producers.

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But Hollywood executives say the company’s long-term future is hard to project. While Huizenga has consistently denied that movies-on-demand pose a near-term threat to his business, some contend that he undercut his position by agreeing to the Viacom deal.

“What the Viacom merger showed was that he wanted to cover himself on content side more aggressively than he let on to everybody,” one source said. “That kind of smoked him out on his rhetoric. Now does he go back to his knitting, or does he do another big deal?”

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Dive guys: Two of the first patrons to test the waters at Dive, the new restaurant co-owned by director Steven Spielberg, were MCA Chairman Lew R. Wasserman and President Sidney J. Sheinberg. The two were spotted at the Century City eatery over the weekend. There was no word on what they thought of the food, but it will take a lot of meals to repay Spielberg for the combined profits MCA has realized from his “Jurassic Park” and “Schindler’s List.”