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Icahn Said to Win Blockbuster Board Seat
Thursday May 12, 1:07 am ET
By David Koenig, AP Business Writer
Icahn, Two Allies Apparently Win Election to Blockbuster Board; Hopes to Retain Ousted Chairman


DALLAS (AP) -- Billionaire financier Carl Icahn is hoping to keep John F. Antioco as chief executive and chairman of Blockbuster Inc., after ousting him in a fierce proxy fight.
Icahn, the movie-rental chain's largest shareholder, has sparred with the company in recent weeks over its strategic direction and compensation for Antioco. He apparently won three seats on the company's board Wednesday in a shareholder vote, and Antioco had threatened to resign if he lost his seat as chairman.

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Shareholders elected three of seven directors. General Counsel Edward B. Stead said official results won't be known for several days but that it appeared Icahn's candidates had won. The company was briefed on the voting by its proxy solicitor.

An Icahn representative said he would propose adding a seat on the board for Antioco and making him chairman.

In an interview, Icahn said his slate won more than 75 percent of the shares voted. He said he would seek majority control next year if the company fails to generate more cash. The company lost $1.25 billion last year and its cash flow fell by half from early 2004 to early 2005.

Icahn said he wants to limit spending, but he stopped short of saying he would seek to roll back measures such as Antioco's plan to spend $170 million this year to build Blockbuster's new online service.

Antioco defended the online business as necessary to compete against rival Netflix Inc. and cheap DVDs sold at mass merchandisers. "We believe the plan is working," he said.

Antioco had joked with shareholders earlier in the morning, but after the preliminary results, he was more subdued.

"I would be lying if I told you this is a happy day, because it is not," Antioco said. "But we'll roll with the punches."

Antioco declined to answer questions from reporters, including whether he would accept Icahn's offer to stay. He could quit and receive a full severance package, including early vesting of stock awards, according to the company.

That is the scenario that prompted Icahn to call for Antioco's retention. The company estimated Antioco's severance would be worth $54 million at Blockbuster's current stock price.

"It would be negligent of the board ... (to) let him walk off with $50 million," Icahn said. "We'll certainly try to bring some discipline in regard to these egregious bonuses given out to Antioco" -- a reference to the CEO's 2004 compensation package, potentially worth more than $50 million if the stock improves.

During the weeks-long proxy fight, Icahn criticized Antioco for Blockbuster's failure to buy rival Hollywood Entertainment Corp. -- Icahn owned shares in both -- and allowing Netflix Inc. to become a potent competitor in online rentals.

Icahn and his insurgent slate was helped by partial recommendations from firms that advise investors on proxy fights.

The election of Icahn himself was a defeat for Blockbuster's last-minute strategy of convincing shareholders to vote for Icahn's two running mates, entertainment industry veterans Strauss Zelnick and Edward Bleier, but not for Icahn himself. The company instead urged a vote for Antioco.

Although Icahn remained in New York, he sent several representatives to the meeting.

"We're very happy today," said one of them, Keith Meister. "The agenda should be for Mr. Icahn and John Antioco to work together."

On the eve of the meeting, Icahn in New York and company officials in Dallas spoke late into the night about Icahn's demands for changes in management accountability but couldn't reach agreement, Meister said.

Meister declined to discuss Icahn's plans for the company. Icahn owns 9.7 percent of Blockbuster's Class A shares.

Antioco defended his strategy for the company, including expanding the online service and eliminating most late fees, which had accounted for 16 percent of the company's revenue. He said the moves had attracted new customers and would result in enough sales to offset the lost late fees.

Arvind Bhatia, an analyst with Southwest Securities, said the new board would limit any major new spending initiatives but was unlikely to pull the plug on the online service or late-fees changes pushed by Antioco. He predicted that the board would approve a shareholder dividend but far short of the $330 million that Icahn proposed.

"This is the outcome investors were looking for," Bhatia said of the election results. "They wanted to keep Antioco but they also wanted some kind of watchdog on the board."

Inside the hall, several shareholders declined to comment on how they voted. Many of those in the crowded conference room were Blockbuster employees or franchisees who supported Antioco.

George Tobolowsky, who owns 17 stores in Virginia and Maryland, said the elimination of most late fees was difficult but he was able to bring in more customers and raise prices.

"We gave up a lot of revenue, but we're still holding our own," he said. "We believe John Antioco knows what he's doing in terms of turning this company around."

The other board members who apparently lost were restaurant company executive Peter A. Bassi and Linda Griego, president of a television production company.

On the Net: http://www.blockbuster.com





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