Blockbuster has signed a $290m deal to be brought out of bankruptcy by a group of investors, as the movie rental store struggles to compete with online rivals such as Netflix and LoveFilm.
The offer from Cobalt Video Holdco LLC is a so-called “stalking horse” bid, which Blockbuster hopes will attract other bidders who will offer more.
As part of the purchase agreement with Cobalt, Blockbuster must begin closing down 609 stores, according to a court filing.
Cobalt has also reserved the right under certain circumstances to convert Blockbuster’s bankruptcy case into a Chapter 7 liquidation.
The Cobalt group includes funds managed by Monarch Alternative Capital LP, Owl Creek Asset Management LP, Stonehill Capital Management LLC and Varde Partners Inc.
They all hold secured Blockbuster debt, so they stand to benefit if someone else buys the company for more than the amount they paid for their Blockbuster debt.
In 1994 Viacom merged with Blockbuster in an $8.4bn deal but the companies split up in 2004, and Viacom took a $1.3bn write down.
Blockbuster used to be the dominant US and UK movie rental chain. In recent years, competition from Netflix, Redbox kiosks and video on-demand services caused Blockbuster’s revenues to decline. It filed for bankruptcy in September last year.
“By initiating a sale process at this time, we intend to accelerate our Chapter 11 proceedings and move the company forward,” Jim Keyes, Blockbuster’s chairman and CEO, said in a statement. “An auction will allow the company to invite competing bids from both strategic and financial investors.”
Blockbuster must still seek permission from Judge Burton R. Lifland, the Manhattan federal judge overseeing the company’s bankruptcy case, to run the sales process. If the judge approves, potential bidders would have 30 days to submit their offers, followed by a one-week auction.
Blockbuster said it aims to close a final sale by April 20.
