Street high on Viacom, Par pact

Confusion reigns over the exact place that the new, presumably improved Viacom/Paramount/Blockbuster company will occupy in the entertainment hierarchy. But Wall Street expects to find it among the top three contenders.

“At some point this becomes a core holding in an entertainment portfolio, just as Time Warner is and Disney is,” said Kidder, Peabody analyst Alan Gould.

First, the numbers. The proposed merger, which was confirmed Tuesday, will result in a company with an estimated $ 10.7 billion in debt, $ 2 billion in 1994 cash flow and annual debt service of more than $ 600 million.

Investment analysts have forecast revenues just shy of $ 9 billion for the combined company. That puts it in second place on a revenue basis behind Time Warner ($ 14 billion) but just ahead of Walt Disney Co. ($ 8.5 billion), Bertelsmann ($ 8.4 billion) and News Corp. ($ 7.1 billion).

Several analysts declined to consider Japan’s Sony Corp. and Matsushita in the same category because both are so highly diversified, with major operations in electronics and hardware as well as in software.

On the basis of total estimated market value, Time Warnercomes in at No. 1, with $ 14 billion in equity market value plus $ 16 billion in debt. Walt Disney is second, with $ 25 billion in equity and $ 2 billion in debt. The proposed Viacom/Paramount/Blockbuster would be No. 3 (presuming about 400 million shares at $ 30 per) with $ 21 billion in equity and $ 11 billion in debt, and News Corp would be fourth with $ 13.4 billion in equity and $ 6.9 billion in debt.

Whatever the difference in the numbers, Viacom has effectively entered the big leagues. Of course, the turnaround of Par’s studio is expected to prove a difficult and disruptive affair.

In order to realize the full fiscal impact of a Par/Viacom/Blockbuster triple play, Viacom must successfully argue its case soon to Blockbuster shareholders. Some of them are publicly lambasting chief exec H. Wayne Huizenga for selling the company cheaply and embroiling it in a bitter merger war that soon pared its price by another $ 5 per share.

In the absence of other interested buyers, Redstone has little incentive to offer Blockbuster investors any sweeteners. Huizenga and his supporters control about 25% of the shares, with institutional owners controlling another 51%.

Some analysts feel Blockbuster holders are unlikely to oppose Viacom vehemently as the deal is a strategic one for the long run, albeit an absolute bargain for Viacom right now.

While the advent of the much-hyped Media Age has convinced some that Blockbuster’s core rental business will soon fade away, that theory meets with skepticism on the international front, where cable outlets and programming lags behind the U.S. by about 15 years, according to industry estimates. On Wall Street Wednesday, QVC continued to gain on relief that the shopping channel did not acquire Paramount. Its shares rose $ 1.25 to $ 51.50. Viacom shares closed unchanged at $ 28, with its Par bid still valued at a blended $ 80.16 per share. Par shares settled at $ 76.88, down 13 cents. Blockbuster dropped 75 cents to $ 24.50.

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