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Blockbuster Announces $5-Per-Share Payout

18 Jun, 2004 By: Holly J. Wagner

Blockbuster today announced a special cash distribution of $5 per share, or about $905 million based on the number of shares outstanding, to all stockholders including Viacom, in advance of the planned spinoff that would sever the companies in the third quarter.

As owner of about 81.5 percent of Blockbuster's outstanding shares, Viacom anticipates receiving a cash payment of $738 million in the distribution, which will be tax free for Viacom.

“We are pleased to be moving forward with our split-off from Viacom, and we believe that by becoming a separate company we will be better able to pursue our retailing strategy,” Blockbuster chairman and CEO John Antioco said. “Additionally, we believe issuing a special cash distribution will offer value to our stockholders without inhibiting us from executing our business plan.”

The companies jointly announced the terms of the Blockbuster spinoff, which will include Viacom's distribution of its interest in Blockbuster through a "split-off" exchange offer to Viacom stockholders. Viacom stockholders will be allowe to exchange, on a tax-free basis, some or all of their shares of Viacom class A or class B common stock for shares of Blockbuster class A and class B common stock held by Viacom, but the exchange ratio has not been set, but analysts expect Viacom to sweeten the pot with a premium on Blockbuster shares for those who trade.

Blockbuster received a financing commitment from JPMorgan, Citigroup and Credit Suisse First Boston for a new $1.45 billion credit facility subject to customary conditions, which will be used to finance the special distribution and replace Blockbuster's current revolving credit facility, which expires July 1.

A special committee of independent directors of Blockbuster unanimously recommended the credit facility, payment of a $5 per share cash distribution (subject to certain conditions), certain inter-company arrangements and the filing of the Blockbuster registration statement, according to a joint statement. In addition, both the Viacom and Blockbuster boards have approved the exchange offer and the inter-company arrangements.

“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,” Viacom chairman and CEO Sumner Redstone said. “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. The split-off, which is also expected to result in a reduction of Viacom's outstanding shares, enables Blockbuster to focus on its mission to become a specialty retailer of home entertainment.”

Viacom owns 144 million shares of Blockbuster class B common stock, all of the outstanding shares of Blockbuster class B common stock. Viacom has agreed with Blockbuster that, subject to the satisfaction of certain conditions to ensure the tax-free nature of the exchange offer, Viacom will convert a portion of Blockbuster class B common stock, on a one-for-one basis, into shares of Blockbuster class A common stock before to the completion of the exchange offer. After the exchange offer, Blockbuster shares are expected to consist of 60 percent class A common stock and 40 percent class B common stock, and the number of votes per share of Blockbuster class B common stock will shrink from five votes per share to two votes per share.

Blockbuster shares dropped 27 cents in morning trading, while Viacom shares picked up 44 cents.

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