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Analysts Express Doubts on Merger

March 30, 1994

MIAMI (AP) _ Doubts are rising in the investment community that the merger of cable TV network company Viacom Inc. and video rental company Blockbuster Entertainment Corp. will take place - at least under the current terms.

Analysts say a steep drop in the price of Viacom shares since the $8.4 billion stock swap was announced on Jan. 7 makes it likely that it will have to be renegotiated.

Blockbuster Chairman Wayne Huizenga has been making noises lately that he’d like to see a better deal, the latest at a private meeting with analysts last Thursday.

Huizenga’s comments have convinced some analysts that if this isn’t done, the deal will fall through.

″This deal, at least as now structured, is dead,″ PaineWebber Inc. analyst Craig Bibb said Tuesday. The choices left are to ″walk away or renegotiate the deal.″

Viacom agreed to buy Blockbuster by offering its stockholders a package of Viacom shares. At the time, Viacom’s Class A shares were trading at about $46 on the New York Stock Exchange, making the deal worth $8.4 billion. Lately, the stock has traded at around $33.

Huizenga told analysts at the closed-door meeting Thursday that a hypothetical stockholder would need a $42 price to endorse the merger, Blockbuster spokesman Wally Knief confirmed Tuesday.

Knief said ″it would be inappropriate″ to comment on whether the two companies are discussing a better offer, but he confirmed the gist of what Huizenga told analysts.

″He was giving information,″ Knief said. ″He wasn’t stating a preference. He was giving information to explain the situation.″

Huizenga, who is buying the Miami Dolphins football team, was quoted Wednesday at an NFL owners’ meeting on the merger as saying, ″There’s a good chance it may not take place,″ the Sun-Sentinel of Fort Lauderdale reported. Whether Huizenga’s comments represent posturing or a pullout is unclear. Messages left Tuesday with Huizenga and Viacom were not returned.

Bibb took Huizenga’s position to be ″ambivalence. He said he was trying to be positive but essentially had a wait-and-see attitude.″

Huizenga has a big impetus to make some sort of deal. Analysts have suggested that while Blockbuster is highly successful now, its video rental businesses may some day become obsolete as new technologies emerge allowing TV viewers to order movies instantly through their cable TV companies.

Merrill Lynch, Blockbuster’s investment banker, must prepare a fairness opinion stating whether the merger is good for Fort Lauderdale-based Blockbuster.

The Blockbuster board then must recommend whether to endorse the merger to shareholders at the May 24 annual meeting.

″At this point, nobody is saying we’re going to break up the deal, but it could well be that the Blockbuster shareholders are going to vote against this,″ said Dennis McAlpine, who follows Blockbuster for Josephthal, Lyons & Ross.

But analyst John Tinker of Furman Selz said Viacom may be tempted to let the deal die.

″Why do they need Blockbuster? They got Paramount, and they paid for it,″ he said. ″Things change. That’s life. You adapt.″

In practical terms, Huizenga must question the merger price, if for no other reason than to appease the company’s largely institutional stockholders, analysts said. A dissident group sued to block the merger over the price.

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