Icahn Ponders Next Move at Blockbuster Thursday May 12, 6:40 pm ET By David Koenig, AP Business Writer Icahn Ponders Next Move at Blockbuster Now That His Team Has Three Seats on the Board
DALLAS (AP) -- Now that his team has three seats on the board of Blockbuster Inc., other investors in the movie-rental chain are wondering whether billionaire financier Carl Icahn is in for the long haul or just making a short-term play. ADVERTISEMENT
Icahn hasn't revealed many details about his plans after he and two allies apparently were elected to the board of the nation's biggest movie-rental chain.
Chairman John F. Antioco, who was defeated for re-election according to preliminary results, was not talking Thursday. Although company officials expect him to accept Icahn's offer to remain CEO and chairman -- a new board seat would be created for him -- Antioco has not said so.
Company officials continued to count the votes Thursday, a day after declaring that Icahn's slate had apparently been elected. A spokesman said the company had nothing new to report.
The vote count could take several days because some investors may have tried to split their tickets, the company said.
Also on Thursday, Fitch Ratings downgraded $1.1 billion in Blockbuster debt one notch; it was already below investment grade. The credit-rating agency cited concern about Blockbuster's declining liquidity and cash balances.
Fitch analyst Brendan Buckley said the firm also worried that Blockbuster recently got waivers from terms of its bank loans and is likely to pay a big dividend to shareholders, further depleting its cash. During the campaign, Icahn proposed a $330 million payout.
In the afterglow of his victory, Icahn was both conciliatory and critical of Antioco, whom the financier had battered and then beaten during a fierce two-month proxy fight.
Icahn said in an interview late Wednesday that he wouldn't immediately push to cut spending on Antioco's latest initiatives to revive the company: pouring $170 million this year into building an online-rental service to compete with Netflix Inc., and eliminating most late fees that had accounted for 16 percent of revenue.
Icahn said those efforts "might work out. As the largest shareholder, obviously I hope he does achieve them."
Antioco viewed the moves as necessary to stay competitive in the changing home-entertainment market. Blockbuster still dominates in-store movie rentals but also competes now against Netflix, cheap DVDs from mass merchants such as Wal-Mart Stores Inc., plus video-on-demand and pay-per-view from cable and satellite TV operators.
Analysts said they don't expect Icahn to micromanage the company from his perch on the board but will force the company to restrain spending on executive compensation, advertising and other items.
Blockbuster shares rose 20 cents or 2 percent, to $10.25 in afternoon trading on the New York Stock Exchange. Netflix shares jumped $1.07 or 8.3 percent, to $14.02, on the Nasdaq Stock Market after an analyst suggested Icahn would raise Blockbuster's prices for online rentals subscriptions, allowing Netflix to also raise rates.
Icahn's record has often been that of a short-term investor. He regularly threatens companies with takeover offers but is then rewarded when another buyer materializes. With a long string of smart and profitable plays, the 69-year-old Icahn has built a net worth estimated at $7.8 billion by Forbes magazine.
With a three-year term on the board, however, several analysts said that even if Icahn took his 9.7 percent stake hoping for a quick strike, he was now in for the long haul.
"He has a seat on the board for the next three years. He is not going anywhere in the near future," said Stacey Widlitz, an analyst with Fulcrum Global Partners.
The terms of two more Blockbuster directors end next year, which gives Icahn's minority slate extra leverage to influence the board right away.
There was much discussion Thursday about where Antioco's re-election campaign went wrong.
Michael Pachter, an analyst with Wedbush Morgan Securities, said Antioco failed to see that many new Blockbuster shareholders, especially hedge funds, were impatient that the stock price wasn't rising faster -- up about $2 since Viacom Inc. sold its majority stake last fall.
"Viacom was in it for the long term, so he had a long-term growth strategy," Pachter said. "The hedge funds are about short-term gratification. This isn't a rejection of his strategy, but they want to get results quicker."
It wasn't clear whether Icahn received as much support as his running mates, former BMG Entertainment CEO Strauss Zelnick and former Warner Brothers executive Edward Bleier. Two shareholder advisory firms had suggested voting for Icahn's slate but withholding votes from Icahn himself.
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