Randomly Noted

Here’s a good one for you – It’s Carl Icahn’s fault that Blockbuster Inc. is in the sad state it is in today. At least that’s the view of disgruntled junior bondholder Lyme Regis Partners, who claim in a lawsuit that Icahn set the video retail chain to fail so that he could take over the company (as reported on Dow Jones Daily Bankruptcy Review).

The lawsuit goes on to allege that because of his insider status, Icahn had a much better view of how bad things were for Blockbuster and there that allowed allowed him to position himself ahead of the other investors because he knew before everyone else that the company was much closer to bankruptcy.

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Blockbuster, the video retail chain that has watched its business become decimated by online video and DVD rentals, has two big problems on its hands. One is its balance sheet. The other its business model. It made a move to fix one of them today.

Blockbuster filed for Chapter 11 bankruptcy protection and with that filing, will wipe out all of the existing debt on its books. Existing senior debt holders will get all of the equity in the new company. Subordinated debt holders, preferred shareholders and common stock holders get nothing – The sub debt holders may kick up a little fuss over that treatment. The senior debtors also agreed to led a new $125 million to the company.

While the Chapter 11 takes a lot of pressure off the balance sheet, it doesn’t do a thing for the company’s broken business model. It has tried to get into the online business, but it is a late comer to the game. NetFlix stole the mail DVD rental business from them. And companies like Apple and NeFlix have figured out the online rental model where movies and TV shows are delivered to your computer. The real question for Blockbuster is what part of the rental space is left for it?

Neal Lipschutz is attending the World Economic Forum in Davos, Switzerland.

The word “stakeholder” is used with some frequency in the press release announcing results of a World Economic Forum report on the future of the global financial system.

Though business fuzzy, the term stakeholder does take on greater resonance this year at the Forum’s annual meeting getting under way in Davos, Switzerland, as the emphasis of the get-together is on rethinking and rebuilding global financial architecture.

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Reading through our newswire earlier today, I came across the story of a complex merger transaction between Talbots Inc. and something called BPW Acquisition Corp.  I know the retailer has fallen on some hard times, both during and pre-recession. But they got themselves into a position to be majority owned by a three letter acquisition vehicle?

One large shareholder gets bought out and existing shareholders don’t seem to get to tender their shares in the acquisition. In fact, existing holders see their stakes diminished through dilution because the new owners get stock issued to them. So, you get to own Talbots alongside our friends at BPW.

What is going on here? Should existing holders run for the hills?

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General Motors was never the kind of place where things happened fast. It is now. With CEO Frederick “Fritz” Henderson out the door, the auto maker’s post-bankruptcy board of directors has moved quickly. Directors could have given Henderson, who had been in office a mere nine months, more time to prove himself. But Chairman Ed Whitacre and the high-powered directors whispering in his ear recognize the urgency of the situation. Here’s the situation: As the global economy recovers and emerging economies speed up their growth, Whitacre & Co. want people to buy GM cars because they’re well-made, fuel-efficient and attractive –  not because they’re cheap, which has often underlined a GM buyer’s thought process. “GM cars are so boring but the quality is just about okay and the price is rock-bottom so I’ll hold my nose and buy one” – this has been that thought process. Whitacre’s board wants customers to think like Ford buyers – “Wow. This car is getting great reviews, it’s fuel-efficient, it looks really good. I want this Ford.” So, who will succeed Henderson? Who can extract brilliance from GM’s peculiar cultural mix of stodgy complacency and severe low self-esteem? Can a one-in-a-million CEO candidate afford to take a pay cut? One must remember that GM owes taxpayers lots of money; the federal government’s pay czar, Kenneth Feinberg, won’t let Whitacre offer a world-class salary. And besides, who will want to run a company with the White House looking over her shoulder? This will be a labor of love for a man or woman with a visceral affection for General Motors and America’s automotive history; the wherewithal to read, digest and comprehend the statistics behind the marketing glitz – monthly sales, pricing levels, incentives, labor costs and so on; and the brains to ask the right questions and demand rigorous responses from the many thousands of GM workers who have been waiting for just such a leader. GM directors may opt for a non-automotive outsider along the lines of Alan Mulally, Ford’s CEO, who came from the aerospace industry. Mulally has presided over Ford’s resurgence. GM needs a Mulally. Alternatively, it might benefit from a Carlos Ghosn. The spark atop the Nissan-Renault success has been in a demanding dual role since 1999. Does a Detroit assignment appeal to Ghosn? Within GM’s ranks there may be some shining stars a couple of rungs down the hierarchy, but the board may be hard-pressed to find a seasoned change-agent within Henderson’s circle of top executives. Continue reading…

It seems like such a long time ago when Wall Street firms did the classic trade – you take a company private, pay yourself big bucks for doing it, grab huge recurring fees, take the company public and pull more money out along the way. After the credit crisis of last fall, it felt like those days would never return or if they did, it would be a long, long time from now.

Well, it’s back. Now.

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Dorothy & Scarecrow Are Off To See The Wizard

If only the folks at Metro-Goldwyn-Mayer studios had a wizard to visit, who, at the click-of-the-heels three times, could make all of their financial dreams come true. And their nightmares go away.

Instead, the studio known for James Bond movies and the above “Wizard of Oz,” is bringing on board a restructuring expert to help it rework a mound of debt it took on from a $5 billion leveraged buyout in 2004.

The Wall Street Journal’s Peter Lattman reports that a bunch of equity investors in the original LBO have been essentially wiped out. Providence Equity Partners has marked the investment at about 10 cents on the dollar. When the deal was originally announced, Providence said it was committing $525 million. That would be worth but $52.5 million today.

Other big investors, according to the press release in September 2004: Texas Pacific Group ($350 million), Sony Corp. ($300 million), Comcast ($300 million) and DLJ Merchant Banking ($125 million).

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