Blockbuster Receives Bid From Debtholders
FEBRUARY 22, 2011
By MAXWELL MURPHY And JOSEPH CHECKLER
online.wsj.com
Blockbuster Inc. agreed to sell itself for $290 million to a consortium of its debtholders in a pact that gives the buyers the option to convert the video-rental chain's Chapter 11 bankruptcy into a Chapter 7 liquidation.
The agreement also calls for the company to close more than 600 stores by the end of the month.
Blockbuster said Monday it has entered into an asset-purchase agreement with Cobalt Video Holdco, a "stalking horse" bidding group comprising 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.
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 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 begin closing 609 of its stores by Feb. 28. The company said it wouldn't say which stores are tagged for closing.
Blockbuster declined to comment beyond the news release.
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.
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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.
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What remains unclear is what response, if any, billionaire Carl Icahn will have to the move. Mr. 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. He 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 Mr. Icahn didn't immediately return a phone call seeking comment.
Calls and emails to the members of the stalking-horse consortium weren't 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.
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Netflix Inc., with its rent-by-mail and online movie streaming, plus tens of thousands of movie-rental kiosks operated by Coinstar Inc.'s Redbox 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. to roll out Blockbuster 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.
Write to Maxwell Murphy at maxwell.murphy@dowjones.com and Joseph Checkler at joseph.checkler@dowjones.com |
