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Say Goodbye to These Killer B's

By Rick Aristotle Munarriz | More Articles
November 23, 2009 | Comments (14)

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There will be no more B-movies at Blockbuster (NYSE: BBI  ) .

The video-rental chain is combining its less frequently traded Blockbuster Class B (NYSE: BBI-B  ) shares with its more popular Class A equities. Eliminating the dual-class structure has been a trendy maneuver lately. Chipotle Mexican Grill (NYSE: CMG  ) (NYSE: CMG-B  ) announced a similar move last month.

Blockbuster's move was long overdue.

There are only a few public companies out there with two classes of stock. Class B shares usually trade at a discount, despite typically packing greater voting power. Liquidity problems for institutions, weak investor awareness, and wide bid-ask spreads are the more logical explanations for why the seemingly more valuable B shares trade for less than their more popular siblings do.

However, the Class B discounts at Chipotle, SunPower (Nasdaq: SPWRA  ) , and Mueller Water (NYSE: MWA  ) have been historically modest, in the 10% range or narrower. Blockbuster's B shares, on the hand, closed Friday at a whopping 54% discount.

The huge difference may have made it an attraction for arbitragers, who can buy Class B shares and short an equal number of Class A stock, but the wide discount is indicative of the market's pessimism with Blockbuster as a whole. If the consensus is that the stock is heading to Nil City, it's a 100% loss regardless.

For that reason alone, this is a great move by Blockbuster. It won't have to explain the embarrassing disparity as it dusts off new turnaround initiatives.

Besides, Blockbuster has a new fire to put out. The New York Stock Exchange notified the chain last week that it needs to get its stock back up over the $1.00 mark to remain in compliance. It has six months to make it happen, and it joins Sirius XM Radio (Nasdaq: SIRI  ) and others in finding ways to prop up their share price or perform reverse stock splits to avoid exchange delisting.

Consolidating its dual-class structure will hurt in the near term. The Class A shares are barreling lower as its Class B shares are rallying. This may not be the right time, but Blockbuster is certainly making the right move.

Can Blockbuster be saved? Share your thoughts and ideas in the comment box below.

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The Fool owns shares of Chipotle Mexican Grill, which is a Motley Fool Rule Breakers recommendation and a Motley Fool Hidden Gems recommendation. Try any of our Foolish newsletter services free for 30 days.

Longtime Fool contributor Rick Munarriz was an early Blockbuster subscriber, but he hasn't been in a store in ages. He owns no shares in any of the stocks mentioned in this story and isalso part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.


Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On November 24, 2009, at 5:04 AM, SIRIDoom wrote:

    Man,

    You SIRI worshipers need a new religion.

    SIRI is a dead stock until the rev-split...

    Go bash Mel Carmacrook

  • Report this Comment On November 24, 2009, at 8:13 AM, Fredlee009 wrote:

    Day after day I hear personal stories on my investment website about people who got burned by listening to the Motely Fool. Throwing in SIRI name(yes, its a neat trick used to generate hits, period) as many times as possible is only so suckers click on their terrible articles. Thats ok, as long as they keep mentioning SIRI, I will keep mentioning what a worthless and terrrible service this sham of a GS run company is really like.

    SIRI is beyond undervalued, NO R/S coming, EVER. And Paid bashers like SIRI-Doom are paid to spread lies, otherwise too many retailers would hold this stock, or not sell out when told(yes, only reason were still under $1 is because retailers refused to sell AN OBVIOUSLY UNDERVALUED EQUITY. We are not stupid stockholders. We are not unsophisticated. The MM's are not going to be happy with the price they will need to take this stock to get retailers out of it. But thats just too damn bad isnt it. They have till profits are reported to bash a companay SO OBVIOUSLY TURNED THE CORNER, but it will be offiical in Feb, when SIRI reports its first ever REAL ADJUSTED ACTUAL PROFITS. Its been guidanced in, its not NOT going to happen. Just a waiting game now. All games end when this is reported. Siri-Doom will disapear around $3 a share, as insitutitions will begin booking gains.

  • Report this Comment On November 24, 2009, at 8:14 AM, Fredlee009 wrote:

    wdfsfds

  • Report this Comment On November 24, 2009, at 8:42 AM, SlipknotMcGee wrote:

    "If the consensus is that the stock is heading to Nil City, it's a 100% loss regardless."

    Uh, no it's not. You make a higher profit on the short A shares (which you do not now have to buy back) than you lose on the long B shares, so you still make a profit. That's how and why the arbitrage works:

    1. Price goes up

    2. Price goes down

    3. Who cares????

    4. Profit!

    And wow, I haven't seen this kind of religious devotion to a satellite radio stock since I sold my XMSR shares at ~30 per share in 2005. Suckers.

  • Report this Comment On November 24, 2009, at 10:11 AM, dedmunds wrote:

    SIRI CEO MEL SAID

    NO REVERSE SPLIT!!!

    BUY BUY BUY !!!!

  • Report this Comment On November 24, 2009, at 10:21 AM, dedmunds wrote:

    Hey SiriDoom, I think if anyone worships Sirius its you.Admit it, Sirius haunts your life everyday & night.Your whole life revolves around Sirius.Face it Sirius will haunt you FOREVER, HA HA HA

  • Report this Comment On November 24, 2009, at 10:37 AM, dedmunds wrote:

    Hey SiriDoom, I think if anyone worships Sirius its you.Admit it, Sirius haunts your life everyday & night.Your whole life revolves around Sirius.Face it Sirius will haunt you FOREVER, HA HA HA

  • Report this Comment On November 24, 2009, at 12:05 PM, SIRIDoom wrote:

    SIRI worshipers need a new religion.

    Mel is a crook and a cookoo made rich on his lies.

    SIRI the rev-split...

  • Report this Comment On November 24, 2009, at 1:06 PM, SIRIDoom wrote:

    Only a nut case would sleep on a sinking ship.

    SIRI Rev-split very soon.

    Billions of goodwill write-down? Quick and dirty financing? Lean shares issued to Goldman Sachs used to barrow short shares for free? Sell shares with plan to rev-split to pay debt?

    All these things show SIRI history under Mel is all about a crook running the stock into the ground.

    Dump this crap stock. Make Mel Carmacrook and Goldman Sachs eat $10 billion debt.

    SIRi Worshipers eat the truth or eat more future loses.

  • Report this Comment On November 24, 2009, at 4:26 PM, dedmunds wrote:

    HA HA HA SIRIDoom going into a drunken stup just like last time. Panic sicken over how much SIRI has taken off. What an idiot!!!

  • Report this Comment On November 24, 2009, at 4:27 PM, dedmunds wrote:

    SIRI CEO MEL SAID

    NO REVERSE SPLIT!!!

    BUY BUY BUY !!!!

  • Report this Comment On November 24, 2009, at 8:34 PM, dedmunds wrote:

    SIRI,

    The bottom line:

    Cash flow is up enormously, The company recently projected cash flow (adjusted for unusual charges) of more than $400 million this year, compared with a loss of $136 million in 2008.

  • Report this Comment On November 30, 2009, at 4:49 PM, SIRIDoom wrote:

    I just love SIRI.

    Waiting for the Rev-Split is like waiting for a thief to get your family silver and the TV...

    Come on Mel CarmaCROOK, stop ripping us off. You and that dam deal you made with Goldman Sachs has cost us too much. CarmaCrook is letting Goldman Sachs control SIRI stock. How much money do these crooks need? Wait, I know, I all it...

  • Report this Comment On November 30, 2009, at 4:50 PM, SIRIDoom wrote:

    Sell

    Sell

    Sell

    Else donate to me. Why make Goldman Sachs richer...

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