Home video chain Blockbuster Inc. has opted to put itself up for sale after a previous bankruptcy reorganization plan collapsed and its business continued to deteriorate over the holidays.
The struggling Dallas company submitted a plan Monday for an auction process to U.S. Bankruptcy Court in New York. A holding company formed by four of its largest creditors — Monarch Alternative Capital, Owl Creek Asset Management, Stonehill Capital Management and Varde Partners — has put in an opening "stalking horse" bid of $290 million.
The offer is intended to draw other buyers and create a floor on a price. If no other bids are submitted, however, the four creditors would end up controlling the DVD rental and sales company.
In a statement, Blockbuster Chief Executive Jim Keyes said the company hoped to draw offers from both strategic and financial investors. "This will ... allow for the consolidation of ownership of the company to those with a clear and focused vision for Blockbuster's future," he said.
Billionaire Carl Icahn, the largest owner of Blockbuster's debt, is not part of the stalking-horse bid but could still make a play for the company, according to speculation raised in recent news reports. He rapidly bought up the company's bonds in late summer and early fall of 2010, leading some in the entertainment industry to believe he was looking to take control and potentially combine it with the movie studios Metro-Goldwyn-Mayer and Lions Gate Entertainment, which he was also pursuing at the time.
Icahn could not be reached for comment.
Blockbuster filed for bankruptcy protection in September as its once-dominant market position collapsed in the face of competition from lower-cost, more digital-savvy rivals such as Netflix Inc. and Redbox Automated Retail. At the time, its senior secured bond owners said they intended to exchange their debt for full ownership of the company. But that plan is no longer viable, Blockbuster said in its filing, in part because of the continued worsening of its financial picture. During the five weeks that ended Jan. 2, Blockbuster had a net loss of $11.7 million on $206.5 million in revenue.
The company has continued to cut costs in the meantime. It is scheduled to begin closing 609 of its roughly 3,400 U.S. stores by Feb. 28.
In its court motion requesting that it be allowed to find a buyer, Blockbuster said that was the company's only remaining option to continue operating and avoid liquidation.
During the five-month Chapter 11 process, Blockbuster has struggled to meet its financial commitments to the studios that provide movies it rents. Summit Entertainment in January filed a court motion requesting immediate payment of $9.5 million it said it was owed. Last week, 20th Century Fox requested that Blockbuster be required to sequester more than $7 million it will be owed over the next several months.
The news comes as book retailer Borders Group Inc. is shuttering one-third of its stores as part of a Chapter 11 process. Like Blockbuster, it has been battered by the media industry's transition to digital distribution and online sales.