In a move Wall Street dubbed “unexpected,” Blockbuster Entertainment prez Joseph R. Baczko resigned yesterday, just as the video retail giant announced it had initiated a corporatewide reorganization.
The move ushers in a new era at Blockbuster, which has expanded to include 3, 000 stores globally and new ventures into music retailing.
“Joe and the company have mutually reached his decision to resign,” said H. Wayne Huizenga, Blockbuster chairman, in a release issued yesterday by the Florida-based company.
Baczko had been an officer and director of the company since January 1991, after a stint as president of the international division of Toys R Us.
Blockbuster, in its release, credited Baczko with streamlining its video operations and improving its productivity and profitability levels.
“Baczko was an excellent operations guy for retailing, initiating cost controls and efficiencies on a storewide basis,” said Paul Marsh, a securities analyst with Natwest Securities.
Baczko will be forming a new retailing venture in which Blockbuster will be an investor, Blockbuster said in its release.
The release also outlined the burgeoning company’s reorganization plans, a blueprint for its evolution away from video retailing toward a diversified global entertainment entity.
The reorganization results in the creation of separate domestic and international divisions for its homevideo and its music retailing operations, as well as a new technology venture division. Blockbuster Entertainment will serve as a holding company for these divisions.
The reorganization, said David O’Neill, an analyst with William Blair in Chicago, reflects that “the Blockbuster of two years ago is not the same as Blockbuster today.”
While O’Neill, among other analysts, saw the announcement as a positive move, Wall Street overall greeted the news negatively. Blockbuster shares closed off 50 cents to $ 18.25, with 1.4 million shares traded in a down market.
The company also credited its recent music acquisition and its international joint venture with the Virgin Group as two factors behind forming the new divisions and dedicating management to each.
“The reorganization will enable us to identify and capitalize on additional opportunities as they arise,” the release noted.
Steven R. Berrard, Huizenga’s right-hand man and vice chairman of the company , will assume the responsibilities as Blockbuster president on an interim basis.
Insiders note that Blockbuster is likely to recruit a top exec with a consumer entertainment background. “They need someone with an overview between music and homevideo, someone who can see the synergies,” said Natwest’s Marsh.
All the same, he noted, Berrard is hardly a lame duck. “He’s been an active member of management in terms of negotiating deals,” Marsh said.
Moreover, the company, which has seen turnover for many of its top exex over the past year, is also conducting a search for a top exec for its domestic video division. In the past year, vice chairman and CEO Scott Beck also resigned, as well as VP advertising Emil Terry.
The departures follow an active year of growth. New acquisitions include Cityvision, the U.K.’s largest video retailer, for $ 135 million; and two music retailing chains, Sound Warehouse and Music Plus, for $ 185 million.
The company also recently formed a joint venture with Virgin Group to launch an aggressive expansion of the Virgin Megastore chain in the United States, Europe and Australia.
The company is a virtual cash cow, financing its acquisitions through stock and cash. It announced a 51% gain in net income for the three months ended Sept 30, with net income for the first nine months of 1992 growing 50% to $ 96.9 million.
However, it recently filed a shelf registration with the Securities & Exchange Commission for $ 300 million that will enable it to offer bonds to the public market for the first time.
The company also has a $ 325 million credit line with 16 banks at rates of LIBOR plus a fraction.
As a result of its low cost of capital–about 4%–Blockbuster is expected to expand through acquisitions or start-up ventures in the near future. Analysts said they expect it to explore new technologies, maybe even production.