NEW YORK—Satellite television provider DISH Network Corp. has won an auction to purchase the remaining assets of bankrupt video rental chain Blockbuster Inc. for approximately $320 million, the company announced on Wednesday.
DISH said that after certain adjustments for available cash and inventory are made, the deal is actually worth at around $228 million in cash. The transaction will close in the second quarter of 2011, but still requires bankruptcy court approval.
The winning bid was announced a few hours after midnight on Wednesday morning by Blockbuster's current owners. DISH’s offer trumped other bids submitted by minority owner and billionaire investor Carl Icahn, liquidating companies, and several hedge funds, according to a Bloomberg report.
The company said that the $228 million would go toward paying off Blockbuster’s creditors, debt holders, and movie studios. At the time of Blockbuster's bankruptcy filing, it listed assets of more than $1 billion and liabilities of $1.4 billion.
The acquisition gives DISH access to Blockbuster’s 1,700 current retail stores, of which 700 more are in line to be closed or sold off.
"With its more than 1,700 store locations, a highly recognizable brand and multiple methods of delivery, Blockbuster will complement our existing video offerings while presenting cross-marketing and service extension opportunities for DISH Network," said Tom Cullen, executive vice president at DISH Network, in a statement.
Cullen, no doubt, is referring to the ability to use Blockbuster’s retail stores—many of which are located in high-traffic residential areas—to peddle its satellite TV subscription and installation services. DISH may also be able to extract value from Blockbuster’s existing online video rental business by merging it with certain aspects of DISH’s Web-based offerings.
Over the past five years, Blockbuster has faced stiff competition from online movie rental firm Netflix Inc. and Coinstar, which installs Red Box movie rental kiosks in supermarkets and pharmacies. The advent and ubiquity of broadband Internet and its ability to stream high-definition videos have further eroded Blockbuster’s brick and mortal video rental appeal.
In its heyday, around 2002, Blockbuster was worth more than $5 billion in market capitalization. The company filed for Chapter 11 bankruptcy reorganization last September, and a consortium of shareholders was set up to restructure the business. At the time of its bankruptcy filing, Blockbuster managed more than 5,600 stores nationwide.
But after a few months of sagging revenues, poor business prospects, and uncertain economic outlook, the investors decided to put it on the block rather than trying to revive its business on their own.
“While Blockbuster's business faces significant challenges, we look forward to working with its employees to re-establish Blockbuster's brand,” DISH's Cullen says.
As for Netflix, the company on Wednesday announced that it had obtained the rights to stream AMC's popular television series "Mad Men," starting summer 2011. Netflix will pay about $1 million per episode, for all prior seasons of the show.