Blockbuster shakes up board; coup puts Ichan in power seat

DSN Retailing Today, May 23, 2005 by Doug Desjardins

DALLAS -- Despite losing a shareholders vote to rival Carl Ichan, Blockbuster Entertainment ceo John Antioco is expected to stay at the helm of the rental chain and on its board. But the long-time Blockbuster chief may have to share power going forward with Ichan and others wanting the chain to reduce spending.

In a surprise turn of events, Blockbuster shareholders on May 11 voted to appoint Ichan and two allies to the board, ousting Antioco and two candidates backed by the company. Ichan, a billionaire investor who owns 9.7% of Blockbuster's stock, has been critical of Antioco since March when the chain's effort to buy No. 2 retailer Hollywood Entertainment failed.

But in another surprise, Ichan pushed for the board to create a new director's seat to accommodate Antioco and keep him on as its chairman. Before the vote, Antioco had vowed to leave the company if he lost his seat but is now expected to remain. Antioco did not comment on his plans following the vote but said in a statement, "I continue to believe in the business strategy we have been implementing."

Ichan's effort to retain Antioco appears to be driven by his opposition to a severance package that would give Antioco up to $50 million if he left the company, a deal Ichan has also criticized.

The shake-up is bound to have a long-term impact on how Blockbuster operates but shouldn't affect it's current initiatives, which include a venture into online rentals and the elimination of late fees. Analysts say the presence of Ichan could rein in Antioco but won't stop him from calling the shots.

"Even with three new members on the board, Antioco will still have a majority," said Michael Pachter, an analyst with Wedbush Morgan Securities. "But with Ichan on the board, it will certainly make for some interesting meetings."

Ichan has been critical of Antioco since Blockbuster dropped its bid for Hollywood Entertainment, which was sold to Alabama-based rental chain Movie Gallery. Blockbuster cited likely opposition from the Federal Trade Commission as the main reason for not pursuing a takeover.

Antioco come under more fire again on May 5 when the chain reported a loss of $58 million for its first quarter. Blockbuster attributed the loss mainly to the elimination of late fees, which would have added about $145 million in revenue. Antioco said Blockbuster needed to eliminate late fees and launch online rentals to battle rivals like Netflix, which delivers videos directly to customers and doesn't charge late fees.