Icahn is in at Big Blue
UPDATE: Antioco out--and back in
Paul Sweeting -- Video Business, 5/13/2005
MAY 13 | DALLAS--Shareholders swept Carl Icahn and his slate of dissident directors onto Blockbuster's board, dealing a sharp rebuke to long-time chairman-CEO John Antioco and raising questions about the future direction of the company.Although an official tally of the results from the May 11 vote was not released, Icahn said his proxy advisers informed him that his slate won 77% of votes cast, a figure the company did not dispute.
Despite the no-confidence vote from shareholders and Antioco's loss even of a board seat, the newly-elected board moved quickly to reinstate him. In a special meeting by telephone conference call held May 13, the board voted unanimously to create a new seat and appoint Antioco to fill it, the company said. It then reelected him chairman and retained him as CEO.
"I am pleased that both the incumbent and new directors have asked me to continue to serve as Blockbuster's chairman in the interests of building shareholder value," Antioco said in a statement. "I believe that Blockbuster has a world-class brand, great employees and franchisees and a strong potential for future success.
In the weeks leading up to the shareholder vote, Icahn and Antioco had clashed bitterly in the press and through filings with federal regulators, with Icahn accusing Antioco of going on a "spending spree with shareholders' money" and Antioco declaring the vote a referendum on his leadership and the ambitious strategic plan he launched.
After absorbing news at the shareholders meeting that preliminary results indicated a significant win for Icahn, Antioco said, "I'd be lying if I said this is a happy day, because it's not."
The shareholders meeting, by turns tense and bizarre, seemed to reflect the unsettled new state of the company's direction. Twice the proceedings had to be adjourned while company lawyers huddled with auditors from Corporate Election Services to determine whether a quorum existed.
After determining the meeting could continue, Blockbuster general counsel Edward Stead said, "It appears that the dissident slate will be elected."
Antioco then hurried through a prepared presentation on the company's strategic direction--now perhaps moot--before abruptly departing, leaving stunned shareholders wondering what was next. But Icahn quickly extended an olive branch of sorts, endorsing a plan to reappoint Antioco to the board and supporting his reelection as chairman.
"I look forward to working closely with the board and with Mr. Antioco," Icahn said in a statement after the meeting.
Icahn told the Associated Press last week that he does not intend to "micromanage" Blockbuster from his seat on the board. Other changes could be coming, however. And the fate of the various strategic initiatives launched over the past year by Antioco was uncertain, such as the planned $170 million investment this year in Blockbuster's online subscription rental service.
Following Icahn's victory, debt-rating service Fitch Ratings downgraded Blockbuster's senior secured notes deeper into junk territory, citing concerns that Icahn might strip the company of cash or force it into new borrowing to finance a special dividend.
"Fitch believes that bondholders will likely be negatively affected by [Icahn's] board membership as the potential changes in financial policies will likely increase leverage and further weaken Blockbuster's credit profile," the ratings agency said.
Icahn previously had said the company should use its cash flow to pay a special $330 million dividend to shareholders.
Although not officially lowering its rating for Blockbuster, Standard & Poor's said in a statement that it was concerned that integrating new board members could "distract" the company, and that a change in financial policies could trigger a downgrade.
Equity owners were more optimistic, pushing Blockbuster's shares up about 10% for the week.
Meanwhile, it's uncertain how well Icahn and Antioco will be able to work together.
Icahn made clear in his statements following the shareholder meeting that he supported Antioco's reappointment partly to prevent him from pulling the cord on his golden parachute, estimated to be worth as much as $51 million.
Under his contract, losing his seat on the board would give Antioco cause to step down as CEO and take his severance pay with him. Whether he would now be willing to step down without the severance package is unclear.
In addition to Icahn, the incoming shareholders are Strauss Zelnick, former president of BMG Entertainment and a former Fox executive (he also sits on the board of VB-parent company Reed Elsevier), and Edward Bleier, a long-time Warner Bros. executive, now retired.
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