NEW YORK (AP) — A judge on Thursday approved a deal among Dallas-based Blockbuster, its creditors and potential buyers on a process to sell the bankrupt movie-rental chain and avert liquidation.
The deal approved by U.S. Bankruptcy Judge Burton Lifland in New York ends demands from some creditors, including prominent movie studios, that Blockbuster shut down and sell its assets to pay creditors.
Instead, it can now sell itself in an auction that starts with $290 million bid from a group of debtholders. Blockbuster will repay creditors with proceeds from the sale. No date has been set for the auction, but lawyers said it is likely in the first week in April.
Thursday's deal gave the movie studios more certainty on what they'll get out of a sale, Blockbuster attorney Stephen Karotkin said. In return, they'll continue shipping DVDs to Blockbuster stores.
Another change from Thursday's deal was removal of a provision in the debtholders' bid that would have allowed them to convert the bankruptcy to a Chapter 7 liquidation.
Some creditors want the chain to sell itself but remain in business. Others, including a U.S. Bankruptcy Trustee, said the company should shut down and liquidate.
Billionaire investor Carl Icahn weighed in on the matter on Wednesday, saying in a court filing a sale was in the best interest of the company. Icahn hasn't made a bid for the company, but it is possible he will.
A sale "will maximize value and provide all creditors the best avenue for possible recoveries as opposed to a Chapter 7 liquidation," he said.
Icahn was part of the group of debtholders that provided Blockbuster financing to operate while in bankruptcy in September.
Everyone in the group except for Icahn made the "stalking horse" bid in February to buy Blockbuster for $290 million. That group, called Cobalt Video Holdco LLC, includes funds managed by Monarch Alternative Capital LP, Owl Creek Asset Management LP, Stonehill Capital Management LLC and Varde Partners Inc.
Blockbuster used to be the dominant U.S. movie rental chain. But it lost money for years as customers shifted to Netflix Inc., video on demand and DVD rental kiosks.
When it filed for bankruptcy protection in September it was down to 3,000 stores, less than a third of the peak of 9,100 it reached in 2004. In December, the chain said it planned to close 182 more in the next few months.