Ending months of speculation, Viacom has sold its Blockbuster Music chain to Wherehouse Entertainment for $115 million in cash. The deal ends a three-year quest to find a suitor and makes Wherehouse the music industry’s second-largest specialty music retailer.
The pact, which had been expected (Daily Variety, May 12), includes 378 Blockbuster Music retail stores in 33 states and is expected to close in the fourth quarter. The deal does not include Blockbuster Video, which remains under the aegis of Viacom.
Blockbuster Music last year generated $590 million in revenue and $1.9 million in earnings before taxes and interest, but had been a steady money loser for parent Viacom. Blockbuster Music posted a $2.5 million loss in its most recent quarter.
“We are extremely pleased with this transaction, which is another step in Blockbuster’s revitalization and will enhance its ability to focus on what it does best while at the same time further reducing Viacom’s debt,” said Sumner Redstone, chairman/CEO of Viacom, who recently declared the conglom’s 6,000-store Blockbuster Video chain “fixed.”
Wherehouse operates 220 stores in seven states, and has weathered some serious financial storms, including filing for bankruptcy protection two years ago during the music industry’s toughest period in decades. It has plans for 10 additional stores.
The chain has since rebounded and recently posted one of its strongest sales quarters. Its fiscal year, ended Jan. 31, closed with a net revenue of $327.4 million.
“Wherehouse has enjoyed a strong performance over the last 18 months,” said Tony Alvarez, chairman/CEO of Wherehouse. “This acquisition offers us a great opportunity to build on our recent success and gives us entry into several key markets.”
Investment bankers Cerebus Partners own a majority stake in Wherehouse and sought an increased presence in the music industry.
The deal is also good news for the industry, as Blockbuster’s foray into the business has been less than impressive.
“Wherehouse’s buying the chain is good for the overall business. Blockbuster Music was never into it. They just did not grasp the whole picture,” Henry Droz, prexy of Universal Music and Video Distribution told Daily Variety. “Wherehouse is progressive and will take these stores and make them successful.”
Droz noted that for Viacom, Blockbuster Music “has been an albatross for them. I’m sure they are pleased they found a buyer.”
Several suitors kicked the Blockbuster Music tires, including competitor TransWorld, but only Wherehouse ponied up the cash.
Depending upon the industry, Wherehouse ranks as either the third- or fourth-largest dollar-volume account among the Big Six music distribs, after the Blockbuster pact.
It alternates with home electronics retailer Best Buy (289 stores) and is behind retail titan Musicland (703 stores) and Andersen, which supplies music to Wal-Mart stores.