DISH Network has won the bankruptcy court auction to acquire substantially all the assets of beleaguered movie rental chain Blockbuster.
While DISH’s winning bid values Blockbuster at approximately US$320m, the satellite broadcaster will only pay US$228m…
DISH Network has won the bankruptcy court auction to acquire substantially all the assets of beleaguered movie rental chain Blockbuster.
While DISH’s winning bid values Blockbuster at approximately US$320m, the satellite broadcaster will only pay US$228m in cash after certain adjustments such as available cash and inventory. The transaction is expected to close in the second quarter of 2011.
The auction began on Tuesday 5 April at the US Bankruptcy Court for the Southern District of New York and reportedly ended on Wednesday morning at the offices of law firm Cadwalader, Wickerman & Taft. Among the participating bidders was a consortium led by activist shareholder and Blockbuster debt holder Carl Icahn as well as a ‘stalking horse’ bidder comprising a number of the company’s hedge fund creditors.
When the auction was first approved by the court on 11 March, Blockbuster entered into an asset purchase agreement with certain holders of its senior notes whereby they would jointly make a bid of at least US$290m for the company’s assets. The creditors, led by Monarch Alternative Capital and including Owl Creek Asset Management, Stonehill Capital Management and Värde Partners, formed a limited liability company called Cobalt Video Holdco to make their bid
Following its successful offer, DISH’s executive vice president of Sales, Marketing and Programming, Tom Cullen, commented: “With its more than 1,700 store locations, a highly recognizable brand and multiple methods of delivery, Blockbuster will complement our existing video offerings while presenting cross-marketing and service extension opportunities for DISH Network.”
However, Cullen also admitted that the rental chain still faces huge structural difficulties. “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,” said Cullen.
Ratings agency Moody’s stated that the acquisition would not impact on Dish’s ratings due to the DTH provider’s significant financial flexibility relative to its credit ratings. As of 31 December 2010, the company had over US$2.9bn of cash and marketable securities, while it is expected to generate around US$1bn of free cash flow in 2011.
Moody’s senior vice president Neil Begley said: “The company has about US$1bn of maturities in 2011, but the cash and free cash flow should be sufficient fund the Blockbuster acquisition, invest new capital to begin retooling the Blockbuster business and repay the maturity if it is not refinanced in the public markets.”
Begley added: “The Blockbuster assets are not an intuitive fit for Dish, but there could be strategic vertical integration opportunities for Dish if it can successfully turn around and reinvigorate this important though tarnished brand name.”
This slight puzzlement over the strategy behind the acquisition was echoed by a number of analysts. However, DISH has highlighted using the Blockbuster retail outlets for potential cross-selling and marketing of DISH pay-TV services, while one analyst argued that the Blockbuster brand might be used to push a head with a DISH video-on-demand service.
The South Korean telco SK Telecom was also rumoured to be considering a bid for Blockbuster.
