BB Liquidating Inc. (BLIAQ)

[fredman]

As Blockbuster Inc. (BBI, BBIB) gets set to report first-quarter results later Thursday, investors have their eyes on whether recent agreements with movie studios can shore up the declining movie-rental business and on any progress in debt-restructuring talks.

Five sell-side analysts surveyed by Thomson Reuters expect Blockbuster to post a loss of 14 cents a share, or earnings before interest, taxes, depreciation and amortization of about $48.8 million.

Revenue is expected to have declined 17% to $933.3 million as the chain continues to lose market share to by-mail DVD rental service Netflix Inc. (NFLX) and to rental-kiosk operator Redbox Automated Retail, owned by Coinstar Inc. (CSTR).

Smaller rental chain Movie Gallery's (MVGRQ) move, confirmed this week, to close the remaining 1,026 stores it hadn't already tagged for liquidation should be positive for Blockbuster over the next year, Wedbush Morgan analyst Michael Pachter said in a recent note to clients.

But he's skeptical Blockbuster's 28-day head start over competitors to rent new releases from several major movie studios is a long-term answer to the company's strategic woes. Most consumers, he said, are unaware of the average DVD's first release day. "Most are likely to discover availability when visiting their local Redbox kiosk," Pachter said.

Blockbuster's class A shares recently traded up 17.9% at 51 cents, while class B shares rose 12.5% to 41 cents.

Meanwhile, an investor waging a proxy fight for a seat on Blockbuster's board said he'll form a committee to represent shareholders' interests, saying one restructuring proposal being floated is harmful to equity holders and unnecessary.

Blockbuster in March warned it may have to file for bankruptcy protection, though Chief Executive Jim Keyes has repeatedly said the company has sufficient liquidity to meet debt obligations this year.

"Nobody's representing shareholders," Greg Meyer said in an interview. "The board is supposed to be representing shareholders, but they do not appear to be taking that role."

Meyer, who founded a movie-kiosk business he sold in 2007 to Redbox owner Coinstar Inc. (CSTR), is trying to unseat director James Crystal, 72, who was appointed in 2007. Meyer owns about 0.44% of outstanding class A shares and a small number of class B shares, but he says his industry experience will be advantageous to the company.

Meyer, though, is concerned that the movie-rental chain is in talks with holders of $300 million in 9% senior subordinated notes due 2012 to swap the debt for most of the company's shares, a new unsecured note and some cash.

Citing sources familiar with the situation, financial website Debtwire.com said earlier this week that holders of the subordinated debt have proposed receiving about 95% of Blockbuster's equity and a new $125 million senior unsecured payment-in-kind note. In exchange, subordinated debt holders would tender their bonds and contribute $25 million to $30 million in cash.

"In a nutshell, its a very attractive proposal for the subordinated holders and very unattractive for the equity holders," he said. "Importantly, it's not something the firm has to do."

Meanwhile, Meyer has pitched to Blockbuster advisers his own financial transaction that he wouldn't detail but he argues could conserve liquidity and save Blockbuster money without diluting equity interests.

"It basically leverages an asset that the company has in a manner that could bring cash into the company in the near term when it's really needed," Meyer said.

Blockbuster said in a statement it could not comment on ongoing talks tied to its recapitalization efforts, though it said discussions continue and are positive.

"We are pleased with the progress we are making to improve liquidity and reduce the company's debt levels," the company said. "We have been in constructive dialogue with, and received several proposals from, various parties including debtholders, equity holders and strategic investors. We are assessing these opportunities in real time and expect to have more to communicate by our Annual Shareholder Meeting in late June."

Blockbuster's board apparently rejected Meyer's offer from earlier this month to settle his proxy contest by placing him on the board. Meyer had held out the promise of ending the dispute ahead of the June 24 annual meeting, paying associated costs and developing mutual pledges against bad-mouthing or filing lawsuits against each other. Blockbuster never responded, Meyer said.

Source: http://online.wsj.com/article/BT-CO-20100513-714313.html?mod=WSJ_latestheadlines


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