Last Updated Jun 16, 2010 6:30 AM EDT
The Wall Street Journal's Mike Spector reports Blockbuster is seeking $150 million in debtor-in-possession financing from its senior bondholders in case the company files for bankruptcy, while also seeking an outside cash infusion that might keep it out of Chapter 11. Clearly, whatever financing deal it can get will determine whether the company slides into bankruptcy now, or can put it off until later.
Despite postponing its annual meeting for a month, Blockbuster still faces the distinct possibility it will have no financing deal to tell shareholders about next week. It's apparently already too late for it to arrange a Chapter 11 filing in time to announce at the meeting.
It didn't have to happen this way.
Blockbuster managers should have been able to see this financial crisis coming 100 miles off. But massive denial has been the order of the day at this company for a long time. As recently as mid-May, CEO Jim Keyes was telling Wall Street Blockbuster had enough liquidity to make it through the year. Redbox and Netflix (NFLX) ate its lunch, more consumers watched video-on-demand from their cable boxes, and Blockbuster hesitated to make the bold changes needed to stay competitive. The death of archrival Movie Gallery's Hollywood Video chain wasn't a relief, but a harbinger.
When a company needs radical restructuring the way Blockbuster does, the right thing to do is face up to it as soon as possible. Quietly arrange financing, line up your carefully prepackaged bankruptcy reorganization plan, and then run it. A quick in-out of bankruptcy and hundreds of stores lighter, Blockbuster might stand a fighting chance of lasting until its rental-kiosks and online initiatives take hold.
Executives should have been working on refinancing plans a year ago, not having to postpone their annual meeting for a month while they try -- possibly without success -- to scrape a deal together at the last minute.
Blockbuster's survival is a hard sell just based on the challenges new technology brings to their business. Now Blockbuster doesn't just look like it has an antiquated business model, its management team looks like a bunch of stumblebums who can't face reality until they're in desperate straits. That impression can't be helping it in the financial community, which Blockbuster now desperately needs.
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