BLOCKBUSTER DEAL IN THE WORKS; VIACOM EXPECTED TO SPIN OFF LARGE BUT LACKLUSTER VIDEO RENTAL CHAIN.

Byline: Dave McNary Daily News Staff Writer

Breaking up may be hard to do, but media conglomerate Viacom Inc. will soon make Wall Street happy by fulfilling its promise to spin off its Blockbuster chain.

Viacom, expected to report fourth-quarter and year-end earnings today, is entering the final stages of its divorce from the video retail specialist following a rocky five-year marriage.

Viacom Chairman Sumner Redstone may disclose exact details of the breakup during an analysts meeting at Nickelodeon Studios in Burbank today. He promised last year that up to 20 percent of Blockbuster would be sold in the first half of 1999 with the rest spun off to shareholders during this year's fourth quarter.

Wall Street, which never liked the original $8.4 billion buyout of Blockbuster, has embraced the spin-off. That enthusiasm, plus continued strong performance in cable, film and TV operations, has led to a sharp run-up in the company's stock to more than triple its two-year low. It closed Wednesday at $85.0625, down $1.9375 cents.

Viacom investor Narvin Roffman, principal of Roffman Miller Associates, said Wall Street is also giving Redstone credit for strong management of MTV, VH1, Nickelodeon and Paramount Studios. Its movie business has posted solid results by co-financing projects such as ``Titanic,'' ``Deep Impact,'' ``Saving Private Ryan'' and ``A Civil Action.''

``There are only a few companies that do what Viacom does and they're clearly one of the best managed,'' Roffman said.

Wall Street has a love-hate relationship with Blockbuster. The chain has received high marks for recovering from its 1995-96 collapse by aggressively focusing on customer satisfaction and revenue-sharing deals with studios. Trackers remain wary because of home video's long-term uncertainty.

``Viacom is not trading at the same kind of multiple as rivals because of the low valuation of Blockbuster,'' said entertainment industry analyst Arthur Rockwell. ``The issue becomes a problem because you can have a terrific year and still not sell at the same multiple as Time Warner and Walt Disney.''

So to many investors, it's always been a question of not whether to ditch Blockbuster but when. ``The real issue has been to get Blockbuster in the position to be sold off and spun off,'' Rockwell said.

Analysts have differed significantly as to how much Blockbuster, which has more than 4,000 U.S. stores, is worth with estimates ranging from $5 billion to $9 billion. So an offering of 20 percent could raise $1.8 billion, which Roffman believes will be used to cut debt and buy back shares.

Roffman also said the funds could also be used to buy other cable networks. Viacom announced a plan Tuesday to expand its Internet presence with music and children's sites to capitalize on the popularity of MTV and Nickelodeon. Viacom will use $250 million in advertising time to promote the sites and may eventually spin off 20 percent of the new venture.

First Call's survey of 18 brokers calls for Viacom to report earnings of 14 cents a share, compared with $573 million, or $1.54 a share in the 1997 quarter when earnings were boosted by a one-time $1.2 billion gain from its sale of USA Networks. Without the gain, Viacom would have reported a loss of 29 cents a share in the 1997 quarter.

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PHOTO (Color) Viacom Chairman Sumner Redstone said last year that up to 20 percent of the Blockbuster chain would be sold in '99.

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