Who Would Buy Blockbuster?

By Shira Ovide

According to Deal Journal colleague Mike Spector, Blockbuster — operating under bankruptcy-court protection — is planning to hunt for possible buyers after the company’s debt holders couldn’t agree on plans to funnel more cash into the movie-rental chain.

Ok, so the next logical question is: Who might buy Blockbuster?

The short answer: The list is very short.

The likeliest outcome is that investors to whom Blockbuster owes money will use the value of their debt to bid in a bankruptcy auction.

The so-called credit bidding gives a leg up to existing debt holders, because they wouldn’t have to put up fresh money. Indeed, according to Spector, existing Blockbuster creditors — Carl Icahn and a consortium led by hedge-fund Monarch Alternative Capital — are the leading contenders to buy Blockbuster out of bankruptcy.

But you never know.

The Blockbuster sale will be conducted as an open auction in bankruptcy court, and any qualified bidder can come in and plop down a wad of cash. (Well, it will be a small wad of cash. A bidder could offer more than $300 million for Blockbuster, plus take on some of the company’s liabilities, according to Spector. That’s a big come down for a company that was sold to Viacom for $8.4 billion in 1994.)

Last year, a bankruptcy auction of another ailing media asset—the Philadelphia Inquirer and Philadelphia Daily News papers –- drew one strategic bidder. Stern Partners, a Vancouver investment firm that owns pieces of Canadian newspapers such as the Winnipeg Free Press, placed a bid for the Philadelphia dailies, even though no one expected outside bids.

Of course, in the Philly case, Stern was wildly outbid. The company’s debt holders emerged with the winning bid in the bankruptcy auction.

Still, might Netflix swoop in and pluck off Blockbuster? It’s hard to imagine Netflix would want anything to do with physical movie stores, but perhaps Netflix could just pick Blockbuster’s carcass for some DVD titles? Same question holds for Coinstar, the parent company of those RedBox movie-rental kiosks. RedBox, though, mostly stocks the newest movies, so Blockbuster’s inventory probably doesn’t hold much allure.

Or, would a Hollywood studio be intrigued enough to take over Blockbuster? Blockbuster has about 1.2 million subscribers for its movies-by-mail business, which an enterprising media company could use as a launch pad to start an online-movie service to rival Netflix.

Frankly, though, these seem like long shots. More likely, Blockbuster is going to be owned by some hedgie. Next time you show up at your neighborhood video store, it might stock 1,000 copies of “Wall Street” and nothing else.