Blockbuster Falls Short in Bid to Refinance, But Talks Continue

While Blockbuster seeks to restructure debt, it’s also said to be trying to get $100-$150 million in debtor-in-possession funding that would help continue operations if creditors force the chain into bankruptcy. Blockbuster has a $42.1 million loan due July 1. It had $109.9 million in cash as of April 4, down from $188.7 million in January, according to SEC documents. Blockbuster was saddled with $1.2 billion in debt when it spun off from Viacom in 2004. “We are trying to recapitalize the company” so it can pursue a new business model that expands video download, by mail and kiosk operations, Keyes told shareholders. “The complete overhaul of a business is not an event, but is an on-going process. We have a very strong brand with a solid platform and we need to have the balance sheet to fund the transformation."

As Blockbuster continued to negotiate with creditors, it struck an agreement with dissident shareholder Gregory Meyer, avoiding a prolonged proxy fight. Meyer, who owns 625,000 shares of Blockbuster Class A stock, was appointed to the chain’s board. The former DVDXpress CEO waged a battle throughout the spring arguing Blockbuster wasn’t keeping pace with rapid changes in the DVD business and opposing the reelection of board members James Crystal and former EDS Vice Chairman Gary Fernandes. Crystal didn’t seek reappointment and Fernandes was reelected to the board. Keyes, who had argued that Meyer’s plans for changing Blockbuster weren’t workable, welcomed him to the board Thursday at the shareholders meeting, noting he waged a “rather colorful” proxy fight. Meyer has been contacting Blockbuster board members since 2004. Shareholders Thursday also approved merging the company’s two classes of shares into one and a 25:1 reverse stock split that could raise the value of the stock. Blockbuster delayed the start of its annual meeting 30 minutes Thursday to meet the requirement that holders of 50 percent of its common stock be present or represented by proxy. The first total was 48.7 percent, Keyes said.

The appointment of a new board member comes as Blockbuster races to build new revenue streams. Blockbuster on Demand will be available with 150 products by year-end, including TVs, Blu-ray players, cellphones and DVRs, up from about 50-70 currently, said Kevin Lewis, senior vice president for digital. Samsung is fielding the platform in 50 products, while Toshiba also is offering the service. Vizio will have Blockbuster on Demand in LCD TVs, while TiVo launched it earlier this year in DVRs. Motorola put Blockbuster on Demand in the new Droid X cellphone ($199 with a $100 rebate) that features a 4.3-inch LCD, 8-megapixel camera, and 720p video capture and is being sold through Verizon. It is also available with HTC’s HD 2 Windows 6.5 smartphone that T-Mobile is carrying.

Blockbuster also will extend its by-mail program to include videogames, rentals of which have been tested for several months, company officials said. The chain also is continuing to roll out kiosks, about 3,500 of which have been deployed to date as part of a venture with NCR. The goal is to have 10,000 Blockbuster kiosks in place by year-end. The program is more than “just a kiosk” because the machines are designed to handle digital downloads, Keyes said. The strategy is to have Blockbuster stores to serve as the hub to a kiosk’s spoke, Keyes said. Kiosks typically occupy about 16 square feet, he said. “It will expand the trading areas” for Blockbuster, Keyes said.