Blockbuster is expected to file Chapter 11 bankruptcy anytime this week. Armed with a prepackage bankruptcy agreement with their senior creditors, the company is hoping to expedite the bankruptcy process.
Citing sources familiar with the proceedings, the WSJ said corporate raider Carl Icahn, who recently acquired a third of Blockbuster’s senior debt, is pushing the filing that would make Blockbuster debt free by converting $630 million of senior debt into an ownership stake of a new Blockbuster with a further reduced store base. The new company would focus on digital distribution, including transactional video-on-demand (VOD), kiosks, mobile and other platforms.
The prepackaged bankruptcy deal, if approved by the bankruptcy court, would give Icahn a seat on Blockbusters’ Board of Directors and leave junior creditors with nothing to show for their investments. But some analysts following the Blockbuster situation and familiar with the video rental industry speculate that even with Chapter 11 bankruptcy, Blockbuster’s share of the marketplace could continue to erode.
If that’s true, is it feasible that Icahn has a long-term interest in the company, or is he like other last minute investors, looking for a quick profit from a company’s Chapter 11 bankruptcy? Whatever the case, the bankruptcy court will be charged with making sure than any bankruptcy plan approved meets the standard of fairness established by the bankruptcy code. The bankruptcy court will also need to make sure that the bankruptcy restructuring process is free of abusive tactics that corrupt the bankruptcy process or aim to give an unfair advantage to one set of creditors over another.