Newly public shares of Blockbuster Inc. ended their first day of trading Wednesday unchanged at $15. The tepid debut was due most likely to a jittery market and to some concern over the company’s long-term prospects given looming competition from video-on-demand.
The shares were priced Tuesday night at $15 each, below their estimated range of $16 to $18 a share.
About 11.7 million shares of the giant video rental chain were traded. Some news reports said lead underwriter Salomon Smith Barney bought up some stock to keep the shares from falling below their offering price—something Blockbuster and its parent Viacom Inc. were trying to avoid by keeping the price on the low side.
Although the market closed higher Wednesday, it has had a difficult run recently due to fears of higher interest rates. A whole host of initial public offerings ended up reducing the number of shares sold and prices, with several companies pulling their IPOs altogether.
Viacom sold 31 million shares, or 17.7%, of Blockbuster, taking in $465 million and setting a value of $2.63 billion for the entire company. The proceeds from the offering will be used to pay down debt. Viacom has said it plans to divest the rest of the company as well, probably next year.
“We’re happy to get the deal done,” Blockbuster chief John Antioco said during a conference call.
Viacom execs don’t think a primarily retail group like Blockbuster can be valued properly inside a big entertainment company.
Viacom bought Blockbuster in 1994 for about $5.4 billion, before the company went into a tailspin. Viacom chief Sumner Redstone has made significant headway turning the business around by forging revenue-sharing agreements with major Hollywood studios. The studios are also making more money from revenue sharing, which is why many investors don’t see them jumping full force into video-on-demand anytime soon, leaving Blockbuster a clear field for a number of years.