Posted on 05/11/2005 8:29:56 AM PDT by RedBloodedAmerican
DALLAS (Reuters) - The showdown between Blockbuster Inc. (BBI.N: Quote, Profile, Research) Chairman John Antioco and corporate raider Carl Icahn comes to a climax on Wednesday when shareholders must choose who will shape strategy at the United States' largest video rental chain.
Shareholders will vote on whether to oust Antioco and two company-backed candidates from the board of directors, in favor of Icahn and two others, at the company's annual meeting in Dallas, Texas.
The public battle between Antioco and Icahn has grown fierce in recent days as each side called the other ill-equipped to stem the company's slide in the rapidly changing video market.
Icahn, the 69-year-old billionaire who once took over defunct airline Pan Am, and who only weeks ago squeezed an extra $3 billion in share buybacks from oil company Kerr-McGee (KMG.N: Quote, Profile, Research) , has nominated himself and two veteran entertainment executives to the Blockbuster board of directors because of what he has called Antioco's "spending spree."
Shareholder groups Institutional Shareholder Services and Glass Lewis & Co have weighed in with criticisms of Blockbuster management and backed Icahn's candidates, Edward Bleier and Strauss Zelnick, but not Icahn himself, for the board.
Blockbuster triggered Icahn's wrath after its planned purchase of number two video chain Hollywood Entertainment Corp. (HLYW.O: Quote, Profile, Research) fell apart earlier this year. Icahn, who owns about 9.8 percent of Blockbuster, had also taken a large stake in Hollywood, and blamed Antioco for the deal's failure.
Antioco has defended the company's aggressive strategy of shifting toward Internet mail order sales to take on popular rival Netflix Inc. (NFLX.O: Quote, Profile, Research) .
He has also threatened to quit his post as chief executive if he is not returned to the board -- a step that would make him eligible for $54 million in severance payments.
Icahn has called Antioco's severance package "unconscionable," and said even with three board members he would have only a minority voice on the board. Icahn claims he only wants to curb excessive compensation packages and speak out against poor business plans.
Blockbuster has struggled in recent years, posting 2004 losses of $1.2 billion as fewer customers shopped in retail outlets for video rentals. The company launched its "No late fees" campaign to lure customers back to its 9,000 stores, even as it spends $120 million this year to build its Internet operations.
But that Internet strategy will take time, since the company's online customers number only a quarter of Netflix 3 million subscribers.
Blockbuster also expects to lose up to $300 million in revenues from customer late fees at its stores. That "No late fees" campaign also lost some its glow when the company was forced to pay out more than $600,000 to several states that complained the program did not eliminate all charges for late video returns.
Antioco has said Icahn wants only to wring cash out of the company, and he warned Icahn in a letter last month that his proposal to issue an additional $330 million in dividends could break the company.
"We truly believe that following such a course would be tantamount to a liquidation strategy and destructive to shareholder value," Antioco wrote in the April 18 letter released by the company.
"The turmoil and uncertainty you have created threaten to distract the organization and jeopardize our success and could prove damaging to shareholder value," Antioco wrote.
Icahn builds nothing.
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