2012Blockbuster Auction Could Widen to Include Strategic Buyer
by Josh Kosman and Sharon Samuel
Published in Mergermarket
December 3 , 2003
Suitors interested in paying roughly USD 4bn for the Blockbuster movie rental chain now have their chance, several sources close to the situation said.
The reason: the press broke the news this week that three buyout firms were in advanced talks to buy Blockbuster, and the buyout firms were the only parties conducting due diligence, and are actually not very close to a deal, a buy-side source said.
In recent weeks, Blockbuster invited only three to four buyout firms including Blackstone Group, Thomas H. Lee Partners and the Quadrangle Group to conduct due diligence on the chain, the buy-side source said. The buyout firms have not even made a preliminary offer, and are still valuing the business, the source said.
Now the buyers may be forced to make a higher proposal, as it has become public knowledge that they are considering buying Blockbuster, and others may enter the fray after discovering that a deal between the buyout firms and Blockbuster is still some ways off.
Opportunity knocks for strategic buyers including retailers Amazon, Best Buy, JC Penney, Sears and Wal-Mart, and maybe even Berkshire Hathaway. Also buyout firms Bain Capital, the Carlyle Group, Onex Corp., Kohlberg Kravis Roberts & Co., and the Texas Pacific Group all may be interested in the asset, sources said.
Viacom owns 82% of Blockbuster, and is considering spinning out or selling the chain.
Last month, Sumner Redstone, chairman and chief executive officer of Viacom told analysts and investors that Viacom views Blockbuster as a non-core asset, and that the company was "on the case." A spokesperson for Viacom declined comment.
Blockbuster is projected to generate USD 748m in 2004 Ebitda, an analyst said, and has about 8,500 company-owned or franchised stores in 28 countries, most being in the US. A buyer may need to pay between a 4.5 times and six times Ebitda multiple, or USD 3.4b to 4.5b to buy the chain.
"I think Blockbuster is a hard company to sell," Marshall Sonenshine, who has advised a broad range of media companies including Viacom and Disney, said. "But there are people who might look at it at a price."
The fear about acquiring Blockbuster is that more consumers are buying DVDs and ordering movies on line, instead of renting films.
Still Sonenshine, who founded investment bank Sonenshine Pastor, believes a retailer like Amazon may find that its valuation is not sustainable unless it grows, and may see this as an opportunity.
Meanwhile, buyout firms sometimes take risks on strong cash flow business in declining industries. For example, the Texas Pacific Group last year led a group that paid USD 1.4b for Burger King despite consumers becoming more health-conscious.