Blockbuster stock falls as bankruptcy looms

Movie rental chain could file this week; shares down 31%

As published reports indicated that Blockbuster would file for bankruptcy this week, its stock dropped 31% to just 6 cents, making the formerly mighty movie renter worth just $12 million, not including $900 million of debt.

Blockbuster's pain has been Netflix's gain, and Wednesday was no exception. Netflix shares rallied 7% to an all-time high $156.93, giving the DVD-by-mail pioneer a market cap of $8 billion. The expansion of Netflix continued Wednesday with the rollout of its streaming service in Canada, its first foray outside the U.S.

Bloomberg and other outlets have been reporting that Carl Icahn and a group of creditors will swap their debt for Blockbuster stock in a plan that could be revealed Thursday and is sure to anger existing shareholders, whose investments would be wiped clean.

Icahn isn't the large shareholder he once was, and in January he surrendered the board seat that he fought so to obtain five years ago. However, he lately has been buying up Blockbuster bonds on the cheap.

Blockbuster's troubles are owed to competition from Netflix and Redbox but also can be traced back to Viacom spinning it off as a separately traded company six years ago after saddling it with massive debt.

Reuters says the Icahn plan has senior bondholders loaning the company $125 million so that it can remain a functioning entity, then converting $630 million of debt into equity while lesser bondholders get wiped out.

Blockbuster didn't respond to requests for comment, though its public relations department is apparently still on the job. On Tuesday, it issued a news release that touted Disney's "Prince of Persia" as Blockbuster's best-renting and best-selling DVD for the week ending Sept. 19.