April 6 (Bloomberg) -- Dish Network Corp. won an auction for bankrupt Blockbuster Inc.’s movie-rental business with a $320 million bid that beat offers from Carl Icahn and other investors.
The deal, which still requires approval from U.S. Bankruptcy Judge Burton Lifland, will allow what was once the world’s largest movie-rental chain to reorganize instead of having its assets sold off by liquidators. Dish said it expects to pay approximately $228 million in cash as part of the bid to acquire the company.
Blockbuster filed for bankruptcy in September with 5,600 stores, including 3,300 in the U.S., saying 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.
“While Blockbuster’s business faces significant challenges, we look forward to working with its employees to re-establish Blockbuster’s brand as a leader in video entertainment,” Tom Cullen, a Dish Network executive vice president, said today in a statement.
Cullen said Blockbuster’s more than 1,700 store locations, its recognizable brand and multiple methods of delivery would complement Dish’s existing video offerings.
The satellite TV provider’s winning bid came shortly after 3 a.m. New York time, according to a person who attended the bidding and didn’t want to be identified because the results weren’t yet public. The other bidders were a group of lenders, a team of two liquidators and the Seoul-based wireless and Internet-service provider SK Telecom Co.
Dish Network, based in Englewood, Colorado, won after an eight-hour auction in Manhattan bankruptcy court was transferred to the offices of Icahn’s law firm, Cadwalader, Wickersham & Taft LLP, at 5:30 p.m. Throughout the day, lawyers and advisers for Blockbuster took breaks to evaluate the bids, which included cash components as well as other elements which weren’t easily comparable.
Michael Freitag, a New York-based spokesman for Blockbuster, didn’t immediately return a call before normal business hours.
A $290 million “stalking-horse” offer from Cobalt Video, a venture between lenders including Monarch Alternative Capital LP, set the sale procedure and opened the company to competitive bidding from Cobalt and four other parties. The corporate liquidators Gordon Brothers Group LLC and Hilco Merchant Resources LLC also placed bids.
Blockbuster’s Chapter 11 bankruptcy petition listed assets of $1.02 billion and debt of $1.47 billion. Blockbuster has 2,400 U.S. stores as of this week, with plans to close another 700 by mid-April, spokesman Freitag said previously.
Icahn, a Blockbuster lender and former director, was teamed with four corporate liquidators: Great American Group Inc., Tiger Capital Group LLC, Hudson Capital Partners LLC and SB Capital Group LLC. Icahn has also invested in media companies Time Warner Inc., Lions Gate Entertainment Corp. and Metro-Goldwyn-Mayer Inc.
Blockbuster, based in Dallas, had by March 10 resolved disputes with its largest creditors about the initial contract with the Cobalt group. Forty-five creditors had initially objected to Blockbuster’s initial deal, including Walt Disney Co., Universal Studios, Yahoo! Inc., the U.S. Trustee’s office, landlords and unsecured creditors.
Smaller creditors filed more than 50 objections in the last two business days leading up to Monday’s auction, protesting the way Blockbuster intends to transfer old contracts to a new owner. The company hasn’t shown it or a buyer can pay amounts still owed under contracts, landlords and business partners including Microsoft Corp., T-Mobile USA Inc. and Yahoo! said.
The case is In re Blockbuster, 10-14997, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
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