Blockbuster Heads Toward Sales Block 2/10/11
By MIKE SPECTOR
Blockbuster Inc. is preparing to put itself up for sale after creditors disagreed on plans to give the movie-rental chain more cash to help it exit bankruptcy protection, people familiar with the matter said.
Blockbuster now plans to seek buyers instead of reorganizing in bankruptcy court and could ask a judge to approve bidding procedures for the company as soon as next week, the people said. Creditors including billionaire investor Carl Icahn and a consortium led by hedge fund Monarch Alternative Capital LP are leading contenders to buy the chain out of bankruptcy court, the people said.
A bidder could offer more than $300 million for the chain, plus assumption of various liabilities, including certain store leases, the people said. Blockbuster remains in talks with creditors on the structure and value of potential bids. The people cautioned that Blockbuster's sale plans could be delayed.
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Blockbuster and Monarch declined to comment. Mr. Icahn didn't respond to requests for comment.
Another factor driving momentum toward Blockbuster's looming sale: Bondholders fear the company's value is eroding in bankruptcy court, which the chain entered in September. Without clear ownership or direction, Blockbuster remains hindered in efforts to compete with Netflix Inc. and other rivals, the people familiar with the matter said.
An auction would move faster than a typical reorganization, allowing Blockbuster to be in the hands of new owners sooner who have clear views on what to do with the company, these people said. Blockbuster needs "to get on with it," one of these people said.
The decision to sell the company comes after bondholders led by Mr. Icahn and Monarch failed to agree on a plan to invest yet more money in the struggling chain. After poor holiday sales and projections for a costlier turnaround, Blockbuster and its bondholders determined the company needed more cash, in the form of equity financing.
That added a new wrinkle to a reorganization plan that called for bondholders to forgive more than $630 million in debt for ownership of the video-store chain. In addition to that debt, the bondholders have already provided Blockbuster with a $125 million loan to see it through bankruptcy court.
Bondholders have held varied talks on how much capital they would be willing to give Blockbuster on top of that reorganization plan. Mr. Icahn at one point had been willing to invest more than $200 million, the people familiar with the matter said. Monarch and other investment firms holding Blockbuster's bonds weren't willing to invest that much, the people said. But they also didn't want to be diluted by an investment from Mr. Icahn.
Since Mr. Icahn and the Monarch-led group each hold enough debt to block the company's current reorganization plan, the disagreement led to a stalemate, prompting Blockbuster to hang a for-sale sign.
Mr. Icahn and the Monarch-led group are each likely to bid for Blockbuster, the people familiar with the matter said. Blockbuster is expected to soon name either Mr. Icahn or the Monarch-led group as a so-called stalking-horse bidder that would set a floor for bids in a wider auction, the people familiar with the matter said.
The creditors have become increasingly concerned about Blockbuster's performance of late, the people said. The video-store chain generated earnings before interest, taxes, depreciation and amortization below $100 million last year, the people said. That compares with more than $150 million in 2009.
Any new owner will have to speed Blockbuster's transition away from brick-and-mortar stores and toward more modern businesses, such as vending-machine kiosks, mail-order deliveries and on-demand services through cable boxes and the Internet.
Netflix, for instance, has posted continual gains in subscribers and ended 2010 with more than 20 million people paying for its mail-order and digital businesses. Blockbuster had 1.2 million subscribers to its mail-order business at the end of October, down from 1.5 million a year earlier.
Blockbuster could close hundreds more stores under new ownership, the people familiar with the matter said. Both Mr. Icahn and the Monarch-led group have discussed closing about 1,000 of the chain's more than 5,000 remaining outlets. Blockbuster has closed more than 1,000 stores in the U.S. during the past two years. Any decisions about store closures probably wouldn't occur until Blockbuster reaches a deal with a buyer, one of these people said.
Write to Mike Spector at mike.spector@wsj.com
http://online.wsj.com/article/SB10001424052748704132204576136420346744208.html
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