MGT350 Week 5 Team D- Blockbuster Buyout Paper

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Running head: BLOCK BUSTER BUY OUT 1 Blockbuster Buy Out MGT/350
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BLOCK BUSTER BUY OUT 2 Block Buster Buy Out Blockbuster goes through significant change Blockbuster, the leading global provider of in home movie rentals and entertainment was founded by David Cook in 1982. Cook was the owner of Cook Data Services that provided computer software to the oil and gas companies in the state of Texas. David Cook and his wife decided to sell the company and enter the video rental business. Their vision was to provide the consumer a greater selection of movies to choose from in very convenient locations. 1n 1985, the first blockbuster store opened in Dallas TX. With an inventory of 8,000 tapes and 6,500 titles, other local video stores found it hard to compete. The public loved the idea of renting movies recently shown in the theaters and also a greater collection to choose from. Blockbuster was so successful that three more stores were opened by the summer of 1986. In February 1987, Cook’s future with the company began to diminish as he sold one-third of Blockbuster to a group of investors led by Wayne Huizenga. By 1987, Blockbuster began to franchise stores. Through acquisitions and new store openings, Blockbuster had grown to 415 stores in the United States by 1988 and was the largest video store rental chain in the country. At its peak, Blockbuster operated close to 5,000 stores in the United Sates (The Street, 2011). Factors that lead to a Buyout On September 23 rd. 2010, Blockbuster filed for Chapter 11 protection in the state of NY because the company was nearly $1billion in debt. In an article published by CNN.com in September 2010, it was reported that “Blockbuster’s goal was to lower its debt to less than $100 million”. On April 6th, 2011 Dish Network announced that it had purchased Blockbuster for
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BLOCK BUSTER BUY OUT 3 $320 million. The driving factors behind Blockbuster’s downfall were many. An article in Newsweek.com in September 2010 reported that in 1989, Bear Sterns accused Blockbuster of “inaccurate and grossly misleading accounting practices.” The article also mentions that these practices resulted in “dubious earnings” and “non-reoccurring sales” were reported. Although the previous management wanted to grow the company slowly, Wayne Huizenga’s aggressive management style was to expand by absorbing the competition and that they did throughout the 1990s. In 1994, analysts on Wall Street were critical of the direction of the company but that did not stop Viacom in taking control of Blockbuster in a $4.7 billion deal. This merger with Viacom was the beginning of Blockbusters downfall. To sweeten the deal, Blockbuster invested heavily in Viacom that drained the company’s bottom line and lowered their values. In 2004, as part of the deal to spin off from Viacom, the company had to pay Viacom shareholders $5 per-share dividend that added close to $1 billion of debt to its already fragile financial situation. In 2004,
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This note was uploaded on 07/13/2011 for the course MGT 350 taught by Professor Adams during the Spring '08 term at University of Phoenix.

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MGT350 Week 5 Team D- Blockbuster Buyout Paper - Running...

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