Blockbuster Denies Taiwanese Rumor
Dow Jones newswire had a quick snipet on Blockbuster today, that quoted a company spokesperson as denying reports that Blockbuster has sold off it’s 128 Taiwanese outlets to Webs-tv.net for $15 million. The spokesperson acknowledges that Blockbuster has submitted a proposal to Taiwan’s Fair Trade Commission to review a potential deal, but notes that “We currently maintain ownership . . . of those stores.”
When speculation on the Taiwanese deal first broke, the market had a very robust response to the news. The timing of the rumor also happened to coincide with news of a $1 million stock purchase by Blockbuster CEO John Antioco. With Blockbuster’s stock price having taken an absolute beating over the last few years, I can understand why value investors might be willing to take a gamble on the company, but the excitement over Antioco’s purchase and the potential Taiwanese transaction seemed like a misplaced catalyst to me.
It’s true that Antioco dipped into his own bank account to purchase his $1 million shares on the open market, but that’s a small pittance compared to the $5 million in stock that he pocketed from Dec. 04′ – Dec. 05′. It’s also true that by selling their Taiwanese units, Blockbuster could get rid of an under performing asset in their portfolio and clean up their balance sheet a little bit, but it’s never been likely that the Taiwanese unit would sell for very much and today’s rumored $15 million price tag clearly surprised the market. Even if Blockbuster could squeeze out a couple million more at the negotiation table, any money raised from the sale would likely be collateralized anyway and would need to go towards paying down their debt.
While initially, Blockbuster tried to talk up the potential Webs-TV deal, with Wall St traders smelling blood in the water over rumors of how insignificant this deal may end up turning out, the company had no choice but to come out and publically deny that they’ve consumated a deal at a $15 million price tag.
With Blockbuster facing on going losses an their international stores, they may be playing a dangerous game of Deal or No Deal, with Webs-TV in the starring the role of the banker. As losses continue to build up, it will be interesting to see if the banker ends up agreeing to pay more for their 128 stores or if Webs-TV might actually lower their offering price, if Blockbuster decides to drag their feet. At the end of the day, it’s looking increasingly likely that Blockbuster will have no choice, but to exit Taiwan and while $15 million for 128 stores means that they’d only value each store at around $117,000, it’s still better then just closing their stores, like they had to do when they left Spain.
Whether Blockbuster ends up with a briefcase full of cash or a briefcase full of regionally coded DVDs will likely depend upon their ability to execute on improving efficiencies at the Taiwanese stores. If they continue to lose money, at some point they’ll be forced to get out at rock bottom prices, but if they can turn around their sagging international performance, then they may end up being able to squeeze the banker for more then $15 million to complete this deal.
Posted on December 18th, 2006 by Davis
Filed under: DVDs, Movies