Spelling Entertainment: Stay Tuned

A number of Street pros like what's currently playing at Spelling Entertainment Group: Buyout Fever. "This stock is behaving like a company whose shares are being accumulated for a likely buyout scene," explains one arbitrageur at a major New York investment bank. He thinks Spelling will be taken over by yearend. The company, which produces television shows and motion picture films, is now trying to develop cable networks worldwide.

Investment adviser Charles LaLoggia is betting that Blockbuster Entertainment, which already owns 63.5% of Spelling, will soon snap up the remaining shares. LaLoggia figures that Spelling, which agreed on Sept. 13 to acquire Republic Pictures, is now worth 15 a share in such a deal. Blockbuster owns 33% of Republic, a producer of TV programs for the home-video and syndication market. Spelling stock was a loser for all of 1992 and up until July of this year. Since then, it has been on the rise, climbing to 81 2 a share on Sept. 22 from around 51 2 in early June.

The current frenzy among cable-TV and media companies to acquire producers of movies and made-for-TV films, as highlighted by the raging takeover battle for Paramount Communications, has refocused attention on companies such as Spelling, explains LaLoggia, editor and publisher of Special Situation Report in Rochester, N.Y.

He notes that Blockbuster Chairman H. Wayne Huizenga is using the right strategy in pursuing Spelling. Huizenga first acquired a block of 24.5 million Spelling shares last April, boosting Blockbuster's stake to 54%. Blockbuster continued to buy shares thereafter, which assured Huizenga of control. It also allowed Blockbuster to build its stake with little worry about a rival bid.

THE REAL DYNASTY. Spelling is more attractive and valuable to Blockbuster now because of its merger with Republic, says LaLoggia. Acquiring Spelling would eliminate the expense and trouble of operating another publicly held company. A Blockbuster spokesman says the company is satisfied with its current stake in Spelling.

LaLoggia says Blockbuster wants to become an entertainment giant. It operates some 3,200 videocassette retail stores and holds the rights to more than 16,000 hours of TV programming. Spelling's library includes such movies as Basic Instinct and L.A. Story and TV series Beverly Hills 90210 and Dynasty. NatWest Securities analyst Paul Marsh says Blockbuster plans to launch a Blockbuster Channel with Spelling and Republic supplying the programming.

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