No Blockbuster Deal for Antioco

Under pressure from shareholder Carl Icahn, the CEO of the struggling video chain won't get the money he said he was owed

What does a chief executive officer get for leaving a company a year early? If you're Blockbuster CEO John Antioco, who has been locked in a war of attrition with board member Carl Icahn for more than a year, it's about one-third of what you were expecting. And on top of that, Antioco could get slapped with a lawsuit if he decides to talk to the press about the process.

That's what's emerging from the fine print surrounding the nearly three-month-long fight between Antioco and Icahn that culminated in the Mar. 20 announcement Antioco would leave the company at the end of 2007. Under the terms of his contract, Antioco, 56, was to have been at the helm through October, 2008. He has been with the leading video chain for 10 years.

Antioco, a hard-driving, plain-talking CEO, had long been at odds with Icahn, who owns 15.8% of Blockbuster (BBI). Icahn had wanted Antioco dumped from the board when he mounted his proxy fight back in 2005. The one-time corporate raider turned shareholder activist reluctantly relented when Antioco said he would quit the company. At the time, however, Icahn told Blockbuster shareholders he thought Antioco was "blackmailing" them with his severance agreement, which Antioco said was worth $50 million. Icahn said the board could block Antioco from collecting the money by giving him a new board seat.

Deciding on Payouts

With a well-deserved reputation for taking no prisoners, the 71-year-old Icahn is not a man to be trifled with. And when Blockbuster announced in February that fourth-quarter earnings had dropped 28%, Icahn pressed for the company to cut the $7.65 million bonus for 2006 that had been called for in Antioco's contract. The Icahn-led board offered $2.28 million instead.

Eventually the two sides agreed on $3.05 million for $2006, the company said in its Mar. 20 press release. Icahn did not return calls for comment. Blockbuster spokeswoman Karen Raskopf says, "John could have walked way with more money but chose to stay to work on the steps he outlined in 2003 and which the board has supported."

Still, Antioco can't be thrilled about the payout. In regulatory filings, the company says that it will continue to pay Antioco the $1.25 million annual salary called for in his contract for another year on top of a $2 million bonus. Along with a $1.45 million deferred payment, he'll walk out at the end of 2007 with $4.725 million—considerably less than the $7 million he made in both 2004 and 2003, when the company's falling stock price first attracted Icahn.

As for a hefty severance for leaving eight months before the October, 2008, expiration of his contract? Forget that: The company says its outgoing CEO will get $4.9 million instead of the $13.5 million it says he would have been entitled to if he had been "terminated without cause or had resigned for good reason" under his previous employment contract.

Reading Between the Lines

Think everyone is just ducky with how things worked out? Well, we'll never know. True, Antioco has said he "is pleased" to have reached an agreement that he says "allows for management continuity and ample opportunity for an orderly succession." And for his part, Icahn chimed in saying the terms reached "are clearly in the best interests of the company."

But read the fine print in the newly redone Antioco contract filed with the Securities & Exchange Commission on Mar. 20. Right there, along with the $1,000-a-month car allowance that he'll continue to receive, it says the Blockbuster CEO agreed during his last year to "not give any interviews or speeches"—or to help authors write books or articles "concerning Blockbuster or any of its affiliates or any of their officers, directors, agents, employees, suppliers or customers." (For this reason, Antioco was not contacted for comment for this story.) To paraphrase the oft-repeated motto about Las Vegas "what happened at Blockbuster" will stay there—at least for another year.

Future Battles

As for Icahn, he may just be warming up. This is his second big move in the last month among companies in which he had invested. In February, forest product company Temple-Inland (TIN) said it would spin off its real estate and banking units, winning applause from Icahn, who had pushed the separation plan and said he would drop a planned proxy fight for control of the company. Icahn also has gone to battle against the board of Florida real estate company WCI Communities, where he has launched a proxy battle to oust the board and on Mar. 13 bid $955.9 million for control.

Then there is Motorola, where Icahn has quietly been adding to his 2.48% stake in the company and has filed a proxy statement to win a board seat. Motorola has made all the noises of a company preparing to fight him off, telling shareholders they should thwart his advances. But as John Antioco found out, that is sometimes easier said than done.

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