UPDATE 4-SK Telecom eyes investment in Blockbuster-source

Wed Mar 30, 2011 1:12pm EDT

* SK looking at Blockbuster, other overseas opportunities

* Analysts question synergies from potential deal

* SK Tel shares up 0.3 pct; wider market up 0.9 pct (Adds background on Blockbuster assets)

By Hyunjoo Jin and Caroline Humer

SEOUL/NEW YORK, March 30 (Reuters) - SK Telecom (017670.KS) is considering investing in bankrupt U.S. video rental chain Blockbuster Inc BLOAQ.PK, an official with South Korea's top mobile carrier said on Wednesday.

"We are looking at many opportunities overseas," said the official, who requested anonymity because she was not authorized to talk to the media. "But no details have been decided."

SK Telecom, which controls around 50 percent of the nearly saturated South Korean market, has been looking for opportunities to invest overseas to generate new revenue streams.

Spokespeople at Blockbuster and SK Telecom declined to comment.

Blockbuster, which filed for bankruptcy last fall under pressure from mail-order and digital competitors like Netflix Inc (NFLX.O), will hold an auction for its assets on Monday.

A group of creditors have offered to buy the company for $290 million. Any offer from SK Telecom or others would have to beat that "stalking horse bid." [ID:nSGE71K0AI]

Blockbuster said it would consider bids for all of the company or for parts of it if they can be combined with other offers.

A CONTENT PLAY?

The news about the potential Blockbuster investment, previously reported by the New York Post, came as a surprise to some analysts, who raised doubts about the outlook for the movie rental business.

"We are slightly perplexed by (SK Telecom's interest) because no immediate synergies come to mind and the required restructuring of the company could be very costly," CLSA analyst David Lee said in a report.

"A consummated Blockbuster deal would be quite negative due to the large size of the company and its declining business," he said.

Daewoo Securities analyst Byun Sung-jae said the potential purchase could help SK diversify its content sourcing, adding that the price could be lower than $290 million.

Blockbuster, in addition to its remaining 2,500 store locations, also has digital delivery agreements with Hollywood studios including Sony Pictures, Twentieth Century Fox, Warner Home and Universal Studios. In addition, it has movie kiosks and a by-mail video business.

It has agreements with telecommunications companies in the United States including AT&T, Verizon and Sprint that allow users to rent and purchase movies to watch on their mobile phones.

SK Telecom's shares gained 0.3 percent in a broader market .KS11 that closed up 0.9 percent.

The carrier's overseas investments so far have produced few tangible results, analysts say.

SK Telecom exited the U.S. market in 2008, selling its struggling Helio mobile unit to Virgin Mobile USA. It sold back its stake in China Unicom (0762.HK) for $1.3 billion in 2009.

Billionaire investor Carl Icahn, who owns debt in Blockbuster, has also indicated he may take part in the auction. Bids are due on Thursday.

The stalking horse bid is from a group of hedge funds that include Monarch Capital, Owl Creek Asset Management, Stonehill Capital Management and Varde partners. (Additional reporting by Caroline Humer in New York; Editing by Lisa Von Ahn, Dave Zimmerman)