Blockbuster Inc., the world’s largest chain of video rental stores, raised $465 million in an initial public offering that capitalized on the company’s name even as investors worry about the threat from cable television.
Blockbuster, which is owned by Viacom Inc., the fourth-largest media company, sold 31 million shares at $15 apiece, $1 below the $16-to-$18 range set before the sale.
The IPO represents an 18% stake and valued Dallas-based Blockbuster at $2.63 billion. That’s about 49% of the $5.4 billion Viacom paid for Blockbuster in 1994, excluding debt and some companies that Viacom is retaining, officials said.
Viacom, which retains about 82% of the Blockbuster shares after the sale, plans to spin off the remainder of these shares to its own shareholders following the IPO.
The stock will begin trading today on the New York Stock Exchange under the symbol BBI.
Although Blockbuster’s revenue increased 17% last year to $3.89 billion, investors worry its rental business is threatened by new technology that allows consumers to watch movies delivered through cable to their TV.
“If video on demand takes off, it will be a lot easier and quicker for consumers to get [movies] into their homes,” said Brian Eisenbarth, a portfolio manager with Collins & Co., which manages about $500 million in stocks.
“Going forward, I’m not sure what kind of growth Blockbuster will enjoy,” he said.
Blockbuster, which has about 6,500 stores in the U.S. and abroad, had 31% of the U.S. market for the three months ended June 30, compared with 26% at the end of last year, Viacom Chief Executive Sumner Redstone said recently.
Blockbuster expects to control a 40% chunk of the market within three years, it said in its IPO filing with the Securities and Exchange Commission.
The company will use the stock sale proceeds to repay debt owed to Viacom.