Blockbuster to pull plug in Canada

The Globe and Mail

Rest of Blockbuster Canada outlets to close (RICK WILKING/REUTERS)

After more than two decades, Blockbuster Canada is about to roll its final credits and fade to black by the end of the year.

Its receiver was unable to find a suitor for the rental retailer, which was facing burgeoning competition from online rivals and mail-order services and went into receivership in May.

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Although 55 parties mulled buying the chain – 14 of them made offers and eight of them were for all or almost all of the assets – none of the proposals were acceptable to Blockbuster’s court-appointed receiver.

“As a result, the receiver does not have a firm, binding offer that it can complete in order to obtain value in excess of the liquidation value of the company’s assets,” Michael Creber, senior vice-president at Grant Thornton Ltd., said in a report filed on Wednesday with Ontario Superior Court.

He will ask the court on Sept. 6 for an order to wind down the company’s operations.

The move came as a surprise to some of the dozens of Blockbuster landlords, who had assumed that the receiver’s frenzy of secretive eleventh-hour negotiations for a sale of the stores would end in a deal. Of the 400 outlets, more than 150 are already closed but the receiver was looking to unload the rest in the latest round of talks.

Among companies that considered buying Blockbuster were telecommunications titans BCE Inc. and Rogers Communications Inc., upstart Wind Mobile, as well as the parent of music retailer HMV Canada, industry sources said. Grocery chains such as Sobeys Inc. also mulled a purchase, they added, with plans for a limited range of food offerings.

Blockbuster was pushed into receivership in May after the Hollywood movie studios that provided it with new releases called in almost $70-million (U.S.) in debt - racked up by Dallas-based parent Blockbuster Inc. - that had been secured against the Canadian operations.

It’s similar to what happened in past years to other struggling U.S. chains, such as Linens ’n Things, which succumbed to cutthroat competition in their home market and, in the process, dragged down their stronger Canadian arms.

In Blockbuster’s case, its U.S. business was losing money as consumers turned to mail-order DVDs, mall kiosks and Internet services such as Netflix. But the Canadian operation had $117-million in assets – including $15-million in cash – when forced into receivership.

“This is the Netflix decade for movies,” said Kaan Yigit, president of consultancy Solutions Research Group. “Kids growing up will hardly ever know there was a time you actually went to a store to get a movie.”

While operating in a fading retail category, Blockbuster still managed to attract an array of would-be buyers. Of 14 offers submitted to the receiver in June, eight contemplated transactions involving all, or almost all, of the Canadian assets, the receiver’s report said. The receiver considered five of the offers and subsequently held further discussions with three of those parties. It requested that the court seal details of the offers.

“None of the offers received at or subsequent to the offer deadline were in a form acceptable to the receiver or Blockbuster Canada’s secured creditors and all of such offers still contained … problematic terms/conditions,” the report said.

As a result, the remaining stores will be liquidated by Dec. 31, according to the receiver's recommendation, allowing it to benefit from the heavy holiday shopping season.

Telecom companies have made big plays for retailers in the past: Bell bought up The Source, Telus Corp. picked up Blacks Photography and Rogers teamed up with Shoppers Drug Mart. Smaller, more discount-oriented cellphone operator Public Mobile has partnered with Money Mart and Gateway Newstands.

Still, Blockbuster may not disappear altogether. Dish Network Corp, which bought the failed U.S. parent, could try to launch stores here under the banner, industry advisers said.

But part of the problem with trying to strike a Blockbuster deal is that the company’s retail space is simply too large for a telecom firm: With stores spanning as much as 5,000 square feet, there was no way even a giant telecom offering cellphone, home phone, TV and video products could fill the entire floor. Most telecom stores range between 1,000 and 1,500 square feet; Rogers’ flagship is 2,500.

“The average square footage is just too huge,” one Canadian wireless executive said.

As a result, Wind Mobile had approached the receiver proposing a joint, mixed-use retail project that would see the telecom as one of a number of shops linked together by an open common area.

Anthony Lacavera, chief executive officer of Wind Mobile, said his draft proposal valued the stores at between about $25-million and $50-million. It was too complicated for the receiver and he never submitted a formal bid. The business’s “trending was horrific – literally it’s in a freefall,” Mr. Lacavera said.

Wind Mobile’s blueprint involved using the space for a Wind Mobile boutique, a café franchise, a Yogen Fruz outlet, a convenience store and a reduced Blockbuster presence, which would have rented mainly video games rather than movies. Mr. Lacavera said the idea was likely too complex – with too many variables – for the receiver to sign off on.

“We walked away from it,” Mr. Lacavera said. “The stores, the footprint, are just too big to be useful.”

British liquidator and restructuring specialist Hilco UK, which recently acquired HMV Canada, also looked at buying Blockbuster, sources said. The sale of videos fits into HMV’s strategy of broadening its offerings into various entertainment fields.

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