Blockbuster falls 77% on bankruptcy reports

Rental company stock hit 22 cents; trading halted

Add Blockbuster to the list of companies that could use a bailout right about now.

With $300 million in debt due in August, the nation's top old-style video rental firm confirmed Tuesday it has sought the help of a law firm to help it raise capital.

Wall Street, though, decided early in the day that the hiring of Kirkland & Ellis signaled that Blockbuster could face bankruptcy, so its shares plunged 77% to 22 cents before trading was halted for the rest of the day.

But Blockbuster spokeswoman Karen Raskopf said Wall Street was off the mark. "We do not intend to file for bankruptcy," she said.

Raskopf said Blockbuster's options include a retreat to its capital management plan, whereby it operates the business on the cheap in order to meet its financial obligations.

"We hope we don't have to do that, because we have lots of plans to grow our business," she said.

Blockbuster already has invested vast sums of money to compete with Netflix in the DVD-by-mail industry and to deliver VOD through the Internet, just as Netflix,, TiVo and others are doing.

Blockbuster also is investing in a kiosk business, a response to Redbox, which rents movies for $1 a day at locations like McDonald's and Wal-Mart.

Blockbuster's pain was Netflix's gain, its shares rising 13% before settling for a 6% gain to $36.36 on Tuesday.

Blockbuster, founded in 1985, was purchased by Viacom for $8.7 billion in 1994, then spun out in 1999, saddled with a mountain of debt. It has struggled to turn a profit ever since.

In the third quarter, Blockbuster lost $18 million on revenue that dipped 3% to $1.2 billion. Blockbuster will report fourth-quarter results and update investors on its debt situation on March 19.

One large shareholder taking a beating from Blockbuster's diving share price Tuesday was Carl Icahn, the billionaire financier who owns about 10% of the company and was instrumental in forcing out former CEO John Antioco.

When Antioco left after a decade at the helm in July 2007, Blockbuster hired as its new chairman and CEO James Keyes, who turned around convenience store chain 7-11 as its CEO from 2000-05. One of his early moves at Blockbuster was a failed attempt to acquire Circuit City, which has since gone bankrupt.

Asked whether Blockbuster's financial woes could affect the studios that do business with it, Raskopf said: "It's business as usual for us."