Things look bleak for Blockbuster (NYSE: BBI). The DVD rental chain's shares are trading for pocket change, and now even the company is bracing its shareholders for the likely wipeout of a bankruptcy filing.
The word "bankruptcy" appears 17 times in yesterday's 10-K filing with the SEC.
"The increasingly competitive industry conditions under which we operate has negatively impacted our results of operations and cash flows and may continue to in the future," read the report. "These factors raise substantial doubt about our ability to continue as a going concern."
This may sound familiar to Sirius XM Radio (Nasdaq: SIRI) shareholders. Its stock was trading even lower than Blockbuster is today when reports surfaced 13 months ago that it was hiring advisors for a potential bankruptcy filing. The satellite radio provider was days away from a debt repayment milestone it couldn't cover.
Sirius was in discussions with unnamed sugar daddies, but a Feb. 13, 2009 press release set off an egg timer.
"If these transactions are not consummated, it may be forced to file for bankruptcy protection as early as February 17, 2009," the release warned.
We all know the happier resolution. Liberty Media (Nasdaq: LINTA) stepped up a few days later, agreeing to lend Sirius XM enough money to make it through, in exchange for a 40% stake. The terms were harsh, but they saved Sirius XM's hide. Shares of the satellite-radio operator ranked among last year's biggest winners.
Who will save Blockbuster, though?
Its creditors could step up, fearing the pennies on the dollar that they might stand to collect in a Chapter 11 bankruptcy. Alternately, Blockbuster might somehow pull itself up by its own bootstraps.
However, yesterday's filing is really a dinner bell for any potential suitors. Rather than try to fight it out with fellow vultures in a bankruptcy court, it's easier for any interest acquirer to make a deal now. As a consumer-facing company, it's also in Blockbuster's best interest not to file for bankruptcy, since that would scare away customers who mistake the move for a liquidation.
Four for the show
Outside of private equity interest, let's look at a few of the publicly traded companies that may have an interest in Blockbuster as either an outright buyout or an opportunistic lender along the lines of Liberty for Sirius XM last year.
- Amazon.com (Nasdaq: AMZN) -- Amazon has wanted in on the DVD rental game for years. One can always argue that Amazon has bypassed physical rentals with its push into digital delivery, but the company still sells plenty of DVD and Blu-ray discs. In other words, it can benefit from inheriting Blockbuster's digital initiatives, but it could also find ways to make the most of Blockbuster's excess inventory of used DVDs through its popular storefront. State sales tax implications would likely dampen an outright buyout, but a minority stake is still an option.
- Best Buy (Nasdaq: BBY) -- Best Buy is years removed from its Musicland mistake, buying and ultimately shedding the music chain as the medium was peaking. Why would it repeat the same mistake on the DVD front? Well, Best Buy is in the best position to maximize Blockbuster's transformation into a more well-rounded entertainment retailer. The Blockbuster brand would also help improve its flick section if it went with a "store-within-a-store" theme. Oh, and Blockbuster is also further ahead in digital migration than Best Buy is at this point.
- NCR (NYSE: NCR) -- If you've seen a Blockbuster Express kiosk, you have NCR to thank. The maker of ATMs and self-checkout scanners is the one bankrolling the DVD-spewing machines. It's hard to fathom NCR buying Blockbuster whole, but it may be the best candidate to come to Blockbuster's financial aid, if only to keep its fledgling Redbox clones running smoothly.
- Coinstar (Nasdaq: CSTR) -- Redbox's parent may not necessarily fear the Blockbuster Express rollout. In fact, it would benefit greatly from Blockbuster's demise on a few different levels. However, if it senses that someone else will come in with an infusion that would help boost Blockbuster's profile, it may prefer to be the one holding the puppet strings. Owning Redbox and Blockbuster Express would also make it easier to offer in-town rivals differentiated kiosks -- and beef up its clout with Hollywood studios as more than just a $1-a-night movie renter.
