From the looks of it, Blockbuster's (BBI) days as an independent video rental chain are numbered. The company recently announced plans to shutter 150 stores and conceded it might have to file for bankruptcy due to liquidity problems. To top things off, the stock faces a possible delisting since its market capitalization has fallen below the New York Stock Exchange's minimum $75 million requirement. (Blockbuster's market cap was most recently hovering around $36.6 million.) By contrast, shares of competitor Netflix (NFLX) hit a 52-week high of $77.76 on Monday morning for a market cap of over $4.1 billion.
Blockbuster CEO James Keyes told the Dallas Business Journal that the company has "more options" than it did last year, but one of the most obvious options is for the company to sell itself. (At this point, if Blockbuster secures additional credit, it will likely be at rotten, disadvantageous terms, and then it may still have to file for bankruptcy anyway.)
No doubt, Blockbuster isn't the prettiest girl at the ball. Any buyer will have to take on some very ugly debt -- as of Jan. 3, the company owed nearly a billion dollars. But by the same token, Blockbuster generated more than $4 billion in 2009 revenue and has a customer base of roughly 50 million. Plus, it has a decent-sized online, on-demand movie rental business. The customers alone would be invaluable to any major enterprise that wants to sell digital media online. The most obvious acquirers that come to mind are Amazon (AMZN), Wal-Mart (WMT) or Microsoft (MSFT). But each potential acquirer has its reasons for and against buying cash-strapped Blockbuster.
Microsoft: Given that Microsoft rakes in serious, no-kidding-around profits -- the company generated close to $5 billion in net cash for the quarter ending Dec. 31 -- it could probably swallow Blockbuster whole without putting a dent in its balance sheet. Also, Microsoft has invested heavily in its portable media products (such as Zune) and its digital media store in a desperate effort to catch up with Apple. If Microsoft bought Blockbuster, it would get a DVD rental business which it could fold into its music store.
The downside? Microsoft has no business experience dealing with the general public, much less running a chain of brick-and-mortar stores.
Amazon: Although Amazon already has its own movie-on-demand business and a massive customer base, buying Blockbuster might help the online retailer improve its title selection. (Amazon says it has "50,000 hit movies and TV shows." Blockbuster says it has a "library of more than 125,000 movie and game titles," although it doesn't specifically break out DVD rentals from on-demand titles. Another reason why Amazon might be interested in buying Blockbuster? To keep it out of the hands of its competitors.
The argument against the acquisition: Amazon is a customer-centric company obsessed with providing quality service. By most accounts, Blockbuster lost the customer service war a long time ago.
Wal-Mart: Here's a company that has both the cash and the brick-and-mortar expertise to make a successful Blockbuster acquisition. Plus, Wal-Mart has shown a serious interest in the online video rental business.
Why it might not be interested: Wal-Mart has already placed its bet on online video start-up Vudu.com. In February, Wal-Mart bough the company for an undisclosed figure, but it was rumored to be in the $100 million range. Even if Blockbuster comes cheap, it might be more cost-effective for Wal-Mart to stick with Vudu to build its own online business.
Bonds for Beginners
Learn about fixed income investments.View Course »