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Blockbuster Ups Rhetoric on Activist Shareholder

24 May, 2010 By: Erik Gruenwedel

Claiming his election would pose a “risk” to its future, Blockbuster May 24 increased its opposition to the unsolicited attempt by a dissident shareholder to wrest a seat on the board at the June 24 shareholder meeting.

Gregory Meyer, who holds a 645,000-share stake in Blockbuster and previously owned DVDXpress rental kiosks before selling to Coinstar — parent of Redbox — recently submitted a proxy notice to shareholders seeking to replace board member James Crystal.

Dallas-based Blockbuster has nominated former Walmart executive Jay Fitzsimmons and cable television executive Kathleen Dore to the board – the latter to replace Crystal, who is not seeking re-election.

In a letter to shareholders, Blockbuster reiterated Meyer’s lack of experience and dispelled the candidate’s election as a low-risk proposition as it grapples with a myriad of challenges, including a constantly changing competitive landscape to significant financial and liquidity pressures.

“All ... have no quick fixes or easy solutions,” Blockbuster wrote in the letter.

The last national store-based DVD rental chain said its management is mid-stream on a comprehensive strategy to recapitalize the company and transform it into a multiplatform provider and save it from the fates of Movie Gallery and Hollywood Video.

Blockbuster, together with NCR Corp., is rolling out 10,000 Blockbuster Express kiosks nationwide, in addition to Blockbuster On Demand movies in 60 consumer electronics devices, Blockbuster Total Access DVD mail service and related cable TV initiatives.

Characterizing Meyer's behavior as “threatening” and “amateurish,” and reflecting an unwillingness to play by the rules, Blockbuster said Meyer’s suggestions for improving the business have been either “unoriginal or unworkable.”

Meyer, in an April 16 interview with Home Media Magazine, said Blockbuster’s management had failed to recognize the speed of innovation in the distribution of home entertainment, notably by-mail (Netflix) and kiosks. He cited a 2005 letter sent to the board in which he warned about the burgeoning threat of Redbox, the market leader with more than 24,000 kiosks in operation.

“At a minimum, the current board needs to be vigilant enough to attempt to see what’s around the next corner and, ideally, to foster a culture that encourages innovation from within,” Meyer said.

The shareholder said he presented Blockbuster with “creative” ideas aimed at leveraging Blockbuster’s less obvious assets to reduce its current $900 million debt load “meaningfully.”

Blockbuster countered that Meyer’s ideas are unworkable, demonstrate his naiveté, and constitute a distraction from the work required to address the pressing challenges facing the company. The chain said it offered Meyer a consulting position, which he refused.

“There could not be a worse time in your company's history to gamble on an unknown – an unknown whose inexperience, demonstrated lack of understanding of our business and alarming behavior pose a risk to our ability to overcome our current challenges and thrive in the future,” Blockbuster wrote.

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