Interest rate scare hits B’buster in IPO

Viacom subsid's shares start stock sale $1 short

Amid a rocky market for initial public offerings, shares of Viacom Inc.’s Blockbuster unit were priced at $15 each on the eve of the company’s IPO, a surprising one dollar below an estimated range of $16 to $18 a share.

Viacom is selling 31 million shares, or 17.7% of Blockbuster. The stock will start trading today on the New York Stock Exchange under the symbol “BBI.”

Viacom will raise about $465 million from the deal.

“We’re pleased with the offering, particularly considering the market conditions. The ultimate valuation will be determined by Blockbuster’s performance and by the marketplace,” a Viacom spokesman said.

However, a $15 pricetag is undoubtedly a disappointment for the company, which has the misfortune of bringing Blockbuster to market at a time when fears of higher interest rates are crippling IPOs. That means that despite enthusiasm for Blockbuster among big media investors, some of the cash that usually flows into IPOs may not be there.

Starting low

Viacom is playing it safe. It’s generally better to price on the low side than to risk a new stock falling below its offering price.

“It’s just a bad market, and you want to make sure it does well. You don’t want it to open down,” one Wall Streeter said.

A whole slate of companies have slashed the size and price of their initial public offerings in recent days, and some have postponed deals altogether. “Some of them can’t even get enough interest to get them priced,” he added.

The modest $15 pricetag reinforces Viacom’s commitment to a successful IPO. Even the $16 to $18 range was considered low by many on the Street. But the company has an interest in making investors happy, since it plans to sell off the rest of Blockbuster sometime next year.

Viacom chief Sumner Redstone wants to spin the company off entirely, since he doesn’t think the giant video rental chain is properly valued within a larger entertainment conglomerate.

Blockbuster has 6,500 stores around the world.

Investment banks Salomon Smith Barney and Bear Stearns are the lead underwriters for the IPO.

In a down market, Viacom shares fell nearly $1 to 40 9/16.

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