B’buster buys into Spelling

Blockbuster Entertainment Corp. has taken another stake in Hollywood, this time in TV.

The giant Ft. Lauderdale-based video and music retailer has snapped up a 48.2 % position in Spelling Entertainment, held by Carl Linder’s American Financial Corp., for an estimated $ 141.3 million.

The move, said executives, may finally stock the Blockbuster’s shelves with enough product for its own cable channel.

The immediate appeal is that the deal gives Blockbuster effective control of the producer of such TV fare as “Beverly Hills, 90120” and “Melrose Place,” plus a library of 15,000 hours of TV and 600 feature films.

“Spelling, in essence, is like a studio without the risk associated with a studio,” said Ron Castell, Blockbuster’s senior VP for programming. “They don’t deficit-finance.”

The acquisition follows Blockbuster’s recent $ 25 million investment in Republic Pictures Corp., giving it access to an extensive film library as well as new product.

Blockbuster will make the Spelling purchase in stock, exchanging 7.6 million shares of its own common for the 24.5 million Spelling shares held by American Financial Corp. In addition, Blockbuster will issue warrants to AFC to acquire an additional 2 million shares of Blockbuster common stock at an exercise price of $ 25 per share.

Linder acquired his initial stake in Spelling in 1991, paying an estimated $ 150 million for control of the company. Linder will step down as chairman of Spelling and his son Craig will step down as its CEO, said Spelling chief operating officer Ron Lightstone. Blockbuster exex, he added, will likely take board seats of the TV and movie production company.

Based on Blockbuster’s closing price on Friday of $ 18.625 per share, it is paying approximately $ 141.5 million — not including the warrants — or $ 5.77 for each Spelling share. Spelling closed on Friday at $ 7 a share, but fell off to $ 6.875 yesterday. For the nine months ended Sept. 30, 1992, Spelling had posted a net loss of $ 10.6 million on $ 193 million in sales, despite a healthy cash flow.

Reportedly, the Spelling deal had been in the works since January and was rushed to coincide with a meeting of analysts and institutional investors in Boca Raton, Fla. The news edged up Blockbuster shares a fraction to $ 18.75.

“We’re an entertainment company and the driving force in entertainment is programming product,” said Castell. “We’ve indicated for several years that we would make some strategic investments, and that’s what these are, investments. We’re not buying into these companies to manage them.”

Lightstone added, “We now have a strategic investor interested in the business. Clearly, the video market is one of our most important.”

Spelling also offers up a significant avenue for Blockbuster’s growth. The TV producer launched Spelling Satellite Network’s first channel last week in Mexico , called Tele-UNO, to serve up not only “Dynasty,” but also its Worldvision library. Worldvision holds TV rights to 150 Carolco Pictures films, such as “Basic Instinct.” Next for the satellite system, said Lightstone, will be Europe and Asia.

“We’re very interested in Spelling’s announcement to go global with a Latin American satellite-delivered channel,” said Blockbuster’s Castell. “We have expressed interest in developing over time a Blockbuster network or channel. These libraries and the new product they develop could form the spine of that network.”

Cross-marketing ops

Another ploy for Blockbuster is cross-marketing Spelling’s product. When a new show hits TV, Blockbuster can preview it on the bank of monitors that dot its 2,900 stores, or in the 1.4 million copies of its in-store monthly magazine.

“We’re active and aggressive marketers and that could be helpful in launching shows on the networks,” said Castell.

Does this mean the boys from Ft. Lauderdale have gone Hollywood? “We’re not going to be sitting around the pool with our sunglasses on, making movies,” Castell insisted. “That’s not what we do.”

Despite the new tie-ins to TV, Blockbuster isn’t ignoring its roots.

The current year will see the company open another 300 stores in the U.S. and spend over $ 500 million on new videos from Hollywood studios. Last year, Blockbuster profits grew 52% to $ 142 million on $ 1.2 billion in sales.

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