NEW YORK — Viacom Inc. said Monday that it plans to sell 31 million shares, or 17.7%, of its Blockbuster unit to the public at an estimated offering price of between $16 and $18 a share.
The price, which analysts said reflected a multiple of six to seven times Blockbuster’s estimated cash flow next year, was a bit lower than expected.
But during a conference call to analysts, Viacom chairman and CEO Sumner Redstone said, “The initial valuation range does not in any way reflect what the ultimate value of Blockbuster will be.”
A Viacom insider acknowledged the pricing was on the conservative side, but said this gives the new stock a chance to move upward in the market, which obviously is much more preferable than a stock falling below its offering price.
Viacom plans to take in $496 million from the initial public offering, which it will use to repay debt.
Redstone unveiled statistics that showed Blockbuster’s market share jumped to 31% in the second quarter ended in June from 26% in the fourth quarter of last year. This means Blockbuster chief John Antioco looks likely “to get to his 40% to 50% goal sooner than expected,” Redstone said.
Blockbuster also posted a strong second quarter in revenue, up 17% to $1 billion, and cash flow, which is earnings before taxes depreciation and amortization, swinging to a positive $105 million from a loss of $359 million in the year-earlier quarter. The year-ago period reflected a one-time charge of $424 million.
Redstone said Viacom launched a road show Monday to shop Blockbuster to large institutional investors. It should last about three weeks, with the initial public offering sometime in August.
In an amended registration statement filed with the Securities and Exchange Commission, Viacom said it will own 82.3% of Blockbuster after the IPO, or 80.2% if the underwriters, led by Salomon Smith Barney and Bear Stearns & Co., exercise their over-allotment option. Some 25 million shares will be offered in the U.S. and Canada, and the rest internationally.