PHILADELPHIA Movie rental chain Blockbuster Inc, which filed for bankruptcy last year, said it has started the process to sell itself and has entered into an agreement with "stalking horse" bidder Cobalt Video Holdco for $290 million.
Cobalt is a limited liability company formed by funds managed by Monarch Alternative Capital LP, Owl Creek Asset Management LP, Stonehill Capital Management LLC and Värde Partners Inc.
A "stalking horse" bid is used as a starting bid or minimally accepted offer that other interested bidders must surpass if they want to buy the company.
Cobalt has agreed to purchase substantially all of the assets of Blockbuster and its U.S. and international subsidiaries for $290 million, subject to adjustment.
Blockbuster also filed a motion seeking approval from U.S. bankruptcy court for Southern District of New York to conduct an auction for the company.
"The auction process is designed to achieve the highest and best offer for the company's assets and would be conducted under the Court's supervision," Blockbuster said in a statement.
The bidding procedures, if approved by the bankruptcy court, would require other interested parties to submit binding offers to acquire Blockbuster within about 30 days following such approval. Assuming qualified bids are submitted, an auction would be held within about one week of the bid deadline.
A final sale approval hearing is anticipated to take place shortly after the auction with the closing anticipated to occur no later than April 20, 2011. Blockbuster and its domestic subsidiaries filed voluntary Chapter 11 petitions on September 23.
Blockbuster said expects that its U.S. operations, including a majority of its stores, DVD vending kiosks, by-mail and digital businesses, to continue to serve customers during the sale process.
The company's international operations in Canada, Denmark, Italy, Mexico, and the United Kingdom are also expected to conduct business as usual during the sale. Blockbuster said its franchise locations in both the U.S. and abroad are independently owned, operated and funded, and will also continue normal business operations.
Last week, four landlords asked a Manhattan bankruptcy judge to order immediate rental payment for 38 stores, including one in Blockbuster's hometown of Dallas, or allow them to evict the company.
Blockbuster is already facing demands from the film studio behind the hit "Twilight" vampire series that it pay its bills or liquidate.
Earlier this year, Blockbuster told Summit Distribution LLC that it would not pay $6.8 million it owed for DVDs, including "The Twilight Saga: Eclipse," that were shipped since it filed for bankruptcy in September because it did not have the money, according to court documents.
The bankruptcy court previously allowed the company to borrow $125 million to pay for operations while it was under Chapter 11. The loan was provided by billionaire investor Carl Icahn and a group of hedge funds.
The company filed for bankruptcy with a plan to swap its senior secured bonds, which are owned by Icahn and the group of hedge funds, for ownership of the company.
Blockbuster has not met deadlines for providing details on its reorganization plan as originally planned when it filed for bankruptcy.
(Reporting by Saqib Iqbal Ahmed in Bangalore and Jessica Hall in Philadelphia; Editing by Maju Samuel)