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Report: Blockbuster to File ‘Pre-Packaged’ Bankruptcy Next Month

26 Aug, 2010 By: Erik Gruenwedel

Fiscally challenged Blockbuster reportedly is talking to studios and creditors as it prepares a pre-packaged bankruptcy filing as early as next month, according to the Los Angeles Times.

Dallas-based Blockbuster, which had its penny-stock delisted this summer, has struggled to recapitalize and restructure nearly $1 billion in debt. It is reportedly also looking to shutter about 500 of 3,425 existing stores nationwide.

CEO Jim Keyes last week met with representatives from the major studios to discuss the filing and ensure their support — the latter seen as imperative to Blockbuster emerging successfully from the planned five-month bankruptcy and completing implementation of a multiplatform distribution strategy that includes by-mail, kiosk, mobile, and video-on-demand (VOD), according to the Times.

The move is not surprising as Blockbuster, which has lost more than $1 billion this year, is in its second forbearance agreement to delay payment of a $42 million interest payment due bond holders. The agreement expires Sept. 30.

Several analysts have said it is not a matter of if, but when, Blockbuster filed for bankruptcy. Former Sony Pictures Home Entertainment president Ben Feingold is reportedly acting as an advisor to the debt holders.

"The nature of the movie rental business has changed and Blockbuster couldn't change fast enough," said Edward Woo, analyst with Wedbush Morgan Securities in Los Angeles. Woo said he expects a leaner company to emerge following fiscal reorganization.

"The challenges are high that they won't end up like Movie Gallery, and expectations low that they can morph successfully as Netflix," Woo said.

A Blockbuster representative was not immediately available for comment, but shareholder Niko Celentano, who heads of a group of stakeholders (www.blockbustershareholders.com), was outraged.

"We are angered over this news as the company has led us to believe there would be an out of court settlement," Celentano said in an email. The shareholder said Keyes had repeatedly assured that alternatives to bankruptcy existed and that the company was pursuing them.

Typically in Chapter 11 filings, pre-packaged or not, common shareholders have little recourse and can expect little or no return on their investments, analysts said, a reality that doesn't sit well with Celentano.

"Any [pre-packaged bankruptcy] filing must include the common shareholders as a part of it, or their will be legal action taken," he wrote.

Blockbuster shares, already worth pennies, plummeted nearly 30% to less than 8 cents per share in heavy mid-morning trading.


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