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Blockbuster Puts Itself Up For Sale

21 Feb, 2011 By: Erik Gruenwedel


Bankrupt Blockbuster Inc. Feb. 21 said it initiated the process to sell the company to a group of investors for as little as $290 million.

The Dallas-based video rental icon said it entered into an asset purchase agreement with so-called “stalking horse” bidder Cobalt Video Holdco LLC, which includes a consortium current debt holders holding more than half of Blockbuster's debt.

A "stalking horse" bid typically represents an opening offer that the company for sale hopes serves as a minimum bid.

Cobalt, which consists of Monarch Alternative Capital LP, Owl Creek Asset Management LP, Stonehill Capital Management LLC and Värde Partners, Inc., submitted the $290 million bid for Blockbuster’s assets, including domestic and international subsidiaries. The deal also reportedly includes the shuttering of more than 600 Blockbuster stores beginning Feb. 28.

The bid represents less than two months of Blockbuster's revenue following bankruptcy. Since the filing, the company has generated a loss of $90.3 million on revenue of $526.9 million through Jan. 2.

Blockbuster, which filed for Chapter 11 protection Sept. 23, 2010, citing $1.4 billion in liabilities, said it would ask U.S. Bankruptcy Court in New York to conduct the auction process about 30 days following approval. A hearing is scheduled for March 2.

Blockbuster expects that its domestic operations, including a majority of its stores, Blockbuster Express kiosks, by-mail and digital businesses, will continue to serve customers in the ordinary course during the sale process.

“By initiating a sale process at this time, we intend to accelerate our Chapter 11 proceedings and move the company forward,” said CEO Jim Keyes in a statement. “An auction will allow [Blockbuster] to invite competing bids from both strategic and financial investors. This will also allow for the consolidation of ownership of the company to those with a clear and focused vision for Blockbuster’s future.”

Wedbush Securities research analyst Edward Woo said the sale underscores a big fall from grace for Blockbuster, which was once valued at more than $1.6 billion with nearly 9,000 stores, in addition to ongoing challenges in home entertainment. 

"Its business has continued to deteriorate so much that existing creditors couldn’t agree to put more cash into the business," Woo said. "Now its left with no choice but to sell itself, or consider the possible option of a Chapter 7 liquidation."

Indeed, Blockbuster's "for sale" move suggests that its debtor-in-possession financing facility has been halted, which if true, would hasten sale proceedings.

According to further details in the motion, the "stalking horse" bid of $290 million is predicated on the five major home entertainment studios continuing to supply Blockbuster with content at favorable terms. Absent that condition -- specifically, access to new releases -- the bid drops to $265 million.

Cobalt is also seeking $5 million in expenses should its bid emerge the winner.

Other provisions of the bid include the elimination of gift card credit 45 days following closure of the bid; Cobalt would have the right to terminate the business and handle the "estate" and clearance sales. It is also seeking a minimum 90-day extension on all current leases.

The latter could be problematic with several landlords having filed motions seeking payment on past-due rents.

Eric Wold, analyst with Merriman Capital in New York, said the bid underscores the value of a "dying" video rental channel. He said Blockbuster's biggest assets include its brand name (synonymous with movie rentals), the inventory in the stores, the online rental business with RoxioNow and Blockbuster Express kiosk license fees from NCR Corp.

"That's why the purchase price comes with the option to shut all the stores," Wold said.

Blockbuster expects the close of a sale to occur by April 21.

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