BB Liquidating Inc. (BLIAQ)

[Magnusson]

UPDATE: Blockbuster Agrees To $290M Sale From Noteholders
12 hours 25 minutes ago - DJNF


(Adds details on agreement, and background)

By Maxwell Murphy and Joseph Checkler
Of DOW JONES NEWSWIRES

NEW YORK (Dow Jones)--Blockbuster Inc. has agreed to sell itself for $290 million to a consortium of its debtholders, an agreement that gives the buyers the option to convert Blockbuster's Chapter 11 bankruptcy into a Chapter 7 liquidation, and calls for the company to close more than 600 stores by the end of the month.
Blockbuster said in a press release Monday it has entered into an asset-purchase agreement with Cobalt Video Holdco, a so-called "stalking horse" bidding group comprised of private-equity and hedge funds Monarch Alternative Capital LP, Owl Creek Asset Management LP, Stonehill Capital Management LLC and Varde Partners Inc, which together own more than half of Blockbuster's senior secured notes.
Judge Burton R. Lifland of U.S. Bankruptcy Court in Manhattan has already signed an order setting a date of March 2 for a hearing to establish procedures for bidding. The Cobalt consortium can walk away if its purchase isn't approved by April 20.
The sale agreement gives broad power to Blockbuster's would-be buyers, including converting the case to a Chapter 7 liquidation under certain conditions. It also calls for Blockbuster to commence liquidation of 609 of its stores by Feb. 28. The company said it wouldn't say which stores are tagged for closing.
Blockbuster spokesman Michael Freitag declined to comment beyond the press release. "The release should speak for itself," he said in an email.
If the bankruptcy court approves the bidding process, other bidders will have about 30 days to submit offers, and an auction would be held within a week of that deadline.
The Monarch group has agreed to acquire substantially all of Blockbuster's U.S. and international subsidiaries, and a "majority" of its stores will remain open, according to the release.
"We intend to accelerate our Chapter 11 proceedings and move the company forward," Chairman and Chief Executive Jim Keyes said in the press release.
Blockbuster filed for Chapter 11 bankruptcy protection in September after negotiating a restructuring deal that would put the company in the hands of senior noteholders and cut the company's debt to around $100 million from more than $900 million. Junior noteholders owed $300 million would have been wiped out under the plan.
A lackluster holiday season forced Blockbuster to scramble for more money from creditors, and earlier this month The Wall Street Journal reported that Blockbuster was putting itself up for sale after its creditors disagreed on plans to infuse more cash into the chain to shepherd it out of bankruptcy protection. A Monarch-led group was identified as a likely bidder.
What remains unclear is what response, if any, billionaire Carl Icahn will have to the move. Icahn, a former Blockbuster director, lost nearly all of his more than $150 million investment in both classes of Blockbuster common shares and a class of convertible preferred stock. The legendary corporate raider liquidated his equity position and amassed a large position in Blockbuster's secured debt, and was expected to factor heavily in Blockbuster's ultimate fate. A spokeswoman for Icahn didn't promptly return a phone call for comment.
Calls and emails to the members of the stalking-horse consortium weren't promptly returned.
The $290 million price tag puts a sobering number on the fall from grace for Blockbuster since its heyday in 1994, when Viacom bought the company for $8.4 billion. The company spun off Blockbuster in an initial public offering in August 1999.
The erstwhile leader in movie rentals was preceded into bankruptcy by Movie Gallery, which liquidated when it was unable to create a viable business plan. Both companies were unable to adapt to rapidly changing technology, which made a network of thousands of brick-and-mortar rental stores all but obsolete.
On-demand movies, rent-by-mail juggernaut Netflix Inc. (NFLX)--which itself invested heavily in online video streaming before Blockbuster was able to offer a compelling service of its own--and tens of thousands of movie-rental kiosks operated by Coinstar Inc.'s (CSTR) Redbox division all contributed to the Blockbuster downfall. Not even Blockbuster's exclusive deals with major movie studios to rent movies on the day they were available for sale was able to prevent customers defecting to new technologies and competitors en masse.
Blockbuster partnered with NCR Inc. (NCR) to roll out Blockbuster branded kiosks, but the move came too late and the benefits were too heavily weighted toward NCR. NCR hasn't experienced any disruption due to the Blockbuster bankruptcy because it has the unlimited rights to use the Blockbuster name on its thousands of kiosks and has no obligation to the bankrupt company.

-By Maxwell Murphy and Joseph Checkler, Dow Jones Newswires; 212-416-2171; [e-mail]

Click here to go to Dow Jones NewsPlus, a web front page of today's most important business and market news, analysis and commentary: http://www.djnewsplus.com/nae/al?rnd=NrrL4vlayxarNCLi55ZSXQ%3D%3D. You can use this link on the day this article is published and the following day.


(END) Dow Jones Newswires
02-21-11 2007ET
Copyright (c) 2011 Dow Jones & Company, Inc.