(Adds comments from Icahn and a source close to Blockbuster)
By Gina Keating and Yinka Adegoke
LOS ANGELES/NEW YORK, March 20 (Reuters) - Blockbuster Inc. BBI.N Chairman and Chief Executive John Antioco will leave by year-end after agreeing to a smaller 2006 bonus to resolve a dispute over his pay package, the video rental chain said on Tuesday.
The news drove Blockbuster shares down more than 6 percent as investors worried that the company would slow spending on its online DVD rental service after Antioco’s departure.
A turnaround specialist who was at Blockbuster’s helm for a decade, Antioco had been under pressure from board members to cut costs rather than invest aggressively in the online business that competes with Netflix Inc. (NFLX.O)
Billionaire investor Carl Icahn, who has a seat on Blockbuster’s board, tried to oust Antioco during a 2005 proxy battle, but was prevented by a $54 million severance package.
Icahn abandoned plans to take control of Blockbuster last year in a tacit show of support for Antioco. But a source close to Blockbuster said continued conflict over his compensation package was the final straw for the CEO.
Antioco, 57, will now walk away with an estimated $24.7 million package, plus 5 million stock options that vest by Dec. 31 and can be exercised for the following 30 months.
That includes a 2006 bonus of $3.05 million, reduced from $7.65 million; a $4.99 million lump sum payment, compared with the $13.5 million that he would have been entitled to if he had been terminated without cause under his previous contract; and a 2007 salary of $1.25 million, bonus of $2,025,000 and deferred compensation of $1.45 million.
“This revised employment agreement allows for management continuity and ample opportunity for an orderly succession by the end of the year,” Antioco said in a statement.
Icahn told Reuters Antioco’s pay package was an issue for him. “I’ve said from the start that I found the contract to be unconscionable,” he said. “Contracts of this type are a major problem in corporate America. It undermines accountability.”
Icahn, who regularly rails against overcompensated CEOs at underperforming companies, said of Antioco: “It’s not a personal thing. I like him personally and wish him well in the future.”
Antioco plans to carry out previously announced targets for 2007, including pushing Blockbuster Online past 3 million subscribers this quarter and slowing store closures, Blockbuster spokeswoman Karen Raskopf said.
Icahn declined to name any candidates for CEO but said, “I think the company in the future should be more aggressive, especially in the digital area.”
But Pali Capital analyst Stacey Widlitz said the market’s perception was that Blockbuster would curb spending on its online service after Antioco’s departure.
She said Icahn appeared to want to improve the debt-plagued company’s cash flow position to boost its share price or position it for sale to a private equity investors.
Blockbuster has traveled a rocky road since it was spun off from Viacom Inc. in 2004. The company restructured its debt three times to avoid bankruptcy, fought off false advertising lawsuits and waged a costly price war against rival Netflix.
At the same time, revenues have shrunk and profits have been spotty as the store-based rental industry entered what appeared to be a long contraction.
But in the most recent quarter, Blockbuster appeared to have turned a corner, with plans for paying down debt and growing its online business. Analysts were divided over what effect Antioco’s departure would have.
“The impact should be positive short term, because ... Icahn wants the share price to go up,” Wedbush Morgan analyst Michael Pachter said. “He is not a long-term investor.”
But Citigroup analyst Tony Wible viewed the change as “disruptive during this critical transition period,” adding that Antioco could pressure the share price by selling his estimated 3 percent stake in Blockbuster.
Blockbuster shares ended down 3.5 percent at $6.86. Netflix shares rose 5.2 percent to $22.48. (Additional reporting by Tiffany Wu and Martha Graybow)