Blockbuster’s Investment From "Mark: Chapter 11"

This isn’t the good news people might think it is. So, I was going through some old news and found this (I forgot to write about it the first time).

The news:

Blockbuster Inc. (BBI) has received a boost from its former rival Mark Wattles, who purchased a 5.7% stake in the movie rental chain and said he doesn’t believe the Dallas-based company will file for bankruptcy any time soon.

Wattles, co-founder and former CEO of Hollywood Entertainment and currently the majority owner of the Ultimate Electronics chain, said in a Securities and Exchange Commission filing on Monday, March 16, that he acquired the shares for investment purposes because he believes Blockbuster “does not have a motive to reorganize under Chapter 11.”

Anyone remember Wattles last investment? Yup, now defunct Circuit City.

Mr. Wattles, principal of Wattles Capital Management LLC and the founder of video-rental chain Hollywood Entertainment, took a 6.5% stake in Circuit City, which had at the time about $12 billion in annual sales. Circuit city was eventually liquidated

Before Circuit city Mr. Wattles bought Ultimate Electronics out of bankruptcy, ran it back into bankruptcy, and the bought it out again in 2005. Today it has locations in 9 states and is private, so no word on how it is performing is easily available.

Before that Wattles was best known as the founder of Hollywood Entertainment Corp., which he sold to Movie Gallery Inc. for $1.2 billion in 2005. Good timing. The combined company? You guessed it, ended up in bankruptcy.

Now Blockbuster.

Blockbuster Inc. Chief Executive Jim Keyes recently an independent auditor’s doubts about its ability to continue as a going concern shouldn’t hamper its day-to-day operations at a time when so many other companies are having difficulty coping with the economic crisis. “Given the tightness of the credit markets these days, we are not going to be alone,” he said on a conference call. Blockbuster has spent “a lot of time” explaining its liquidity position to movie studios and various suppliers, Keyes explained.

He also that the “single biggest driver” weakening U.S. DVD rentals in the last two months been lackluster new release titles. In last year’s first quarter, new DVD titles included “Enchanted” and “I Am Legend,” while debuting releases this year have been “good but not great” in comparison, Keyes said during a recent conference call. “The good news is that we’re seeing unprecedented theatrical strength,” he added, pointing out that current box office hits like “Watchmen,” “Slumdog Millionaire” and “Paul Blart: Mall Cop” will be available on DVD in a few months, driving greater domestic DVD rentals.

What effect? Blockbuster swung to a fourth-quarter loss on a $435 million non-cash charge related to a decline in the value of its assets. The company also said three of its largest creditors have agreed to extend its revolving credit facility through Sept. 30, 2010, alleviating concerns about a debt payment that would have been due this August. The company said it lost $362.7 million, or $1.89 a share in the fourth quarter of 2008. In the same quarter a year earlier, it posted a profit of $38.1 million, or 20 cents a share. Excluding items, the company would have earned $80.4 million, or 40 cents a share, in the latest three months. Revenue fell to $1.38 billion from $1.57 billion, as the quarter included one less week than the fourth quarter of 2007.

Keyes did not comment or was not asked why Netflix (NFLX) “is kicking his ass”. Blockbuster has drifted aimlessly under Keyes from an attempt to go after Netflix through the mail, a half hearted streaming online push and now some bizarre Apple (AAPL) envy induced store concept.

I’m not sure what Wattles thinks he can do at Blockbuster. If he wanted cheap real estate he should have just picked up some of Circuit City’s locations. Blockbuster is dying…it just does not know it.

This whole thing is a bit incestuous if you remember correctly because it was Keys who offered $1 billion for Circuit City just months before it was worth, um ZERO.

If history is a guide…..it is only a matter of time before we see another “11” associated with a Wattles investment.

Disclosure (“none” means no position):none
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