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Antioco Leaving Blockbuster After Bonus Dispute

20 Mar, 2007 By: Erik Gruenwedel

John Antioco

Blockbuster Inc. announced that chairman and CEO John Antioco is leaving the company by the end of the year, according to a filing with the Securities and Exchange Commission.

The surprise notice comes as Dallas-based Blockbuster appeared to have successfully bucked downturns in the movie rental market, including analyst scuttlebutt that the company's business had been circumvented by online rental pioneer Netflix Inc.

Central to Antioco's departure was a dispute (disclosed last quarter) between the CEO and the Blockbuster board over a 2006 bonus Antioco felt he was owed, analysts say.

Under a restated employment agreement, Antioco agreed to receive a bonus of $3.05 million, which reflected a compromise from the $2.28 million bonus previously offered by the board and the $7.65 million Antioco believed he was entitled to receive under his previous employment agreement and Blockbuster's 2006 senior bonus plan.

Antioco was instrumental last year in launching Total Access, a hybrid marketing strategy that allowed Blockbuster Online subscribers to rent online and return titles in-store for additional free movies.

Aggressive marketing of Total Access, which included a Super Bowl ad, halftime sponsorship and separate TV spots downplaying rival Netflix resulted in projections of growing the service to more than 3 million subscribers by the end of the first quarter.

The company has not disclosed why Antioco wasn't entitled the bonus under the previous employment plan, but analysts believe that when thrifty investor and board member Carl Icahn got involved in the dispute, the CEO's days were numbered.

“It definitely sounds like a compensation dispute,” said Arvind Bhatia, retail analyst with Sterne Agee in Dallas.

Icahn and Antioco famously feuded over the direction of the company in 2005, which culminated in Icahn successfully nominating a slate of new board members and 77% of shareholders voting not to re-elect the CEO to the board.

Antioco only retained his chairman title with Icahn's approval.

Bhatia said Total Access has turned Blockbuster into a contender for the burgeoning online movie rental market, and Antioco deserves some credit for the program.

However, he said, Antioco's departure would have, at most, a limited impact on Blockbuster.

“Carl Icahn has every incentive to make it work,” Bhatia said. “To add shareholder value, he will find a replacement.”

Blockbuster spokesperson Randy Hargrove said no successor had been named and reiterated that the board, of which Antioco is a member, would continue to work on that.

“Certainly we have a succession plan in place for our management team,” Hargrove said. “The CEO position is and will be part of an ongoing and continued discussion.”

Icahn, in a statement, said he and the board “remain committed” to delivering on the company's financial goals for the year.

“John and the company have reached terms that are clearly in the best interests of the stockholders,” Icahn said.

Analyst Michael Pachter with Wedbush Morgan Securities in Los Angeles believed the compensation dispute likely evolved into a disagreement on Blockbuster's strategy going forward.

“Icahn is probably only interested in cash flow and Antioco is interested in growth,” Pachter said.

Antioco, who has been CEO of Blockbuster since 1997, isn't leaving empty handed.

He is slated to receive a lump sum payment of $4.98 million, compared to a lump sum payment of $13.5 million he would have been entitled to receive if he had been terminated without cause or had resigned for good reason on Dec. 31, 2007, under his previous employment agreement.

The CEO holds more than 1 million shares of Blockbuster common stock.

In a statement, Antioco said he was “pleased” to reach this agreement, which he said allowed for management continuity and “ample opportunity” for an orderly succession by the end of the year.

Separately, the board March 19 voted to recommend that Blockbuster's stockholders approve at its annual meeting an amendment to Blockbuster's certificate of incorporation to eliminate the classification of the board of directors and to provide for the annual election of all directors.

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