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Icahn, Monarch Said to Target Blockbuster for Possible Buyout

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Blockbuster Said to Be Target of Possible Icahn Buyout
Blockbuster, based in Dallas, filed for bankruptcy with the outline of a reorganization plan supported by senior bondholders. Photographer: Jin Lee/Bloomberg

Feb. 11 (Bloomberg) -- Creditors including billionaire Carl Icahn and Monarch Alternative Capital LP are targeting Blockbuster Inc., the bankrupt movie-rental company, in a possible buyout for less than $300 million, a person familiar with the matter said.

Icahn and Monarch are Blockbuster creditors who helped to finance the bankruptcy, making them potential candidates to buy the company, said the person, who declined to be identified because the discussions are private. Icahn and Michael Weinstock, managing principal at New York-based Monarch, didn’t immediately return calls seeking comment after regular business hours yesterday.

Blockbuster, based in Dallas, filed for bankruptcy on Sept. 23 with the outline of a reorganization plan supported by senior bondholders. The company’s deadline for filing a plan and a disclosure statement explaining it has been extended several times. Summit Entertainment LLC, a film distributor and Blockbuster creditor, said last week that Blockbuster isn’t paying its bills and should be liquidated.

“It’s hard to say this debtor is anything but insolvent,” U.S. Bankruptcy Judge Burton Lifland said last month at a hearing in Manhattan.

Martin Sosland, a lawyer for Blockbuster, declined to comment on whether the company might be sold or at what price.

Icahn Purchases

The 74-year-old Icahn led a proxy fight in 2005 that put him on the video-rental chain’s board. He resigned as director in January and in March sold most of his 16.9 percent common-share stake, according to a regulatory filing. He later bought about a third of the company’s senior bonds, according to the person familiar with the matter.

Icahn on Jan. 27 asked Lifland to dismiss a lawsuit filed by creditor Lyme Regis Partners that claims the billionaire used inside information to convert his equity stake in Blockbuster to debt in a bid to take control of the company after it reorganizes.

Blockbuster, which last reported a profit in the first quarter of 2009, posted a net loss of $53.5 million on sales of $736.6 million in the third quarter of 2010. Cash and cash equivalents stood at $52 million as of Oct. 3, the company said in a regulatory filing.

Sosland said Jan. 20 that company wasn’t looking for more money and hadn’t drawn from the $125 million debtor-in-possession loan that is funding operations in bankruptcy.

Summit Debt

Blockbuster owes Summit $9.5 million, including $1.6 million for DVDs of “The Twilight Saga: Eclipse,” and said it wouldn’t pay for products shipped after the bankruptcy filing because it “lacked the funds to do so,” according to Summit’s Feb. 3 court filing.

Blockbuster, with about 3,000 stores in the U.S., said in September that sales shrank in recent years while Netflix Inc. grew by renting movies online and through the mail, and Coinstar Inc. put Redbox DVD vending machines in supermarkets and drugstores.

The company listed assets of $1.02 billion and debt of $1.46 billion when it sought court protection. Holders of 80 percent of the $630 million in 11.75 percent senior-secured notes supported the outline of its reorganization plan, Blockbuster said.

Under the proposed plan, there would be no recovery by holders of the company’s outstanding subordinated debt, preferred stock or common stock, according to a statement. Blockbuster anticipated it would pay something to unsecured creditors, court papers show.

Store Closings

Lifland on Jan. 20 approved Blockbuster’s requests to close stores, reject unexpired leases and sell inventory, after hearing that objections by several landlords were resolved. The company plans to close 110 underperforming stores by the end of this quarter, according to court papers.

Since the bankruptcy filing, Blockbuster has rejected leases on at least 220 locations, most of which were closed beforehand, and by the end of 2010 had shuttered another 72 stores. Blockbuster has until April 21 to decide which unexpired leases at its stores to reject.

“I wonder just what the legs are for this debtor to go forward after April 21,” Lifland said at the Jan. 20 hearing.

The company was founded in 1985, and grew to serve almost 47 million customers daily in the U.S. and 16 other countries. Viacom Inc., which owns the Paramount film studio, bought Blockbuster from Wayne Huizenga for $8.4 billion in 1994, then spun it off to shareholders in 2004.

The case is In re Blockbuster, 10-14997, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

To contact the reporter on this story: Linda Sandler in New York at lsandler@bloomberg.net; Tiffany Kary in New York at tkary@bloomberg.net.

To contact the editor responsible for this story: David E. Rovella at drovella@bloomberg.net.

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