Icahn prunes stake in video rental

Carl Icahn, the billionaire activist investor, has sharply reduced his stake in Blockbuster, the largest US video rental chain, as the retailer seeks an injection of capital to avoid a potential bankruptcy filing.

Mr Icahn sold more than 14m of the retailer’s Class A and B shares over the past week, according to a regulatory filing on Friday, leaving him with control of about 5 per cent of its shareholder votes, down from about 11 per cent he reported in January.

The pull-back follows his announcement in January that he was stepping down from Blockbuster’s board.

The company’s financial position has become increasingly fragile since it announced in February that it had suffered bigger than expected losses in the vital fourth quarter of last year.

Its store-based business has been struggling to adjust to shifts in consumer behaviour over the past five years, as it has lost customers both to Netflix’s DVD by mail rental service, and to low-cost DVD rental kiosks operated by Coinstar’s Redbox.

The scaling down of Mr Icahn’s position at Blockbuster, which he had maintained since the middle of the decade, has been offset by the recent emergence of Mark Wattles, another billionaire investor, as Blockbuster’s dominant shareholder.

A regulatory filing by Mr Wattles in February showed that he had built up a stake giving him about 11.5 per cent of the company’s shareholder votes with 5.1 per cent of its Class A shares, and 18.2 per cent of its double voting Class B shares.

Mr Wattles, a veteran of the video rental industry, founded Hollywood Entertainment, which was sold to Movie Gallery in 2005 after it outbid Blockbuster. Mr Wattles had previously sought to take his company private in a buy-out supported by Leonard Green, the private equity group.

Mr Icahn first acquired a substantial stake in Blockbuster in 2004, and went on to launch a bitter proxy battle against its then chief executive, John Antioco. Mr Icahn subsequently joined the board, and Mr Antioco resigned abruptly in 2007 after continued friction.

He was replaced by Jim Keyes, the current chief executive, who had previously spearheaded a turnround at the 7-Eleven convenience chain.

Mr Keyes told investors in February that Blockbuster was continuing to explore alternatives to raise new capital, working with Rothschilds, the investment bank.

“We have a number of alternatives that we are exploring that will allow us to in some combination recapitalise the balance sheet and give us a good solid strategic partner to move forward [on new initiatives],” he said.

Blockbuster’s shares closed on Thursday at 25 cents. They were trading above $10 when Mr Icahn started building his stake in 2004.