Viacom to Spin Off Blockbuster

question 40

Essay

Viacom to Spin Off Blockbuster
After months of trying to sell its 81% stake in Blockbuster Inc. undertook a tax-free spin-off in mid 2004. Viacom shareholders will have the option to swap their Viacom shares for Blockbuster shares and a special cash payout. Blockbuster had been hurt by competition from low-priced rivals and the erosion of video rentals by accelerating DVD sales. Despite Blockbuster's steady contribution to Viacom's overall cash flow, Viacom believed that the growth prospects for the unit were severely limited. In preparation for the spin-off, Viacom had reported a $1.3 billion charge to earnings in the fourth quarter of 2003 in writing down goodwill associated with its acquisition of Blockbuster. By spinning off Blockbuster, Viacom Chairman and ECO Sumner Redstone statd that the firm would now be able to focus on its core TV (i.e., CBS and MTV) and movie (i.e., Paramount Studios) businesses. Blockbuster shares fell by 4% and Viacom shares rose by 1% on the day of the announcement.
-Why would Viacom choose to spin-off rather than divest its Blockbuster unit? Explain your answer.

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Assess the role of culture in leadership within a specific country context (e.g., Mexico).

Grasp the concept of leading in crises and the stability of institutions as discussed by Bill George.

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Definitions:

Property, Plant, And Equipment

Assets in the form of land, buildings, and machinery, acquired for operations and not for resale.

Preferred Stock

Preferred stock is a class of ownership in a corporation that has a higher claim on assets and earnings than common stock, typically paying dividends before common shares and having priority in the event of a liquidation.

Dividend Preference

A feature of preferred stock that gives it priority over common stock in the payment of dividends.

Voting Rights

The entitlement of shareholders to vote on company matters, typically at the annual general meeting, proportional to the number of shares they hold.