This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Carl Icahn's Blockbuster Bet

NEW YORK ( TheStreet) -- Carl Icahn made a big bet when, as reports claim, he invested in one-third of Blockbuster's (BLOKA.PK) debt. But what exactly does Icahn hope to gain from the once video giant gone bankrupt?

The big bet is that Blockbuster will be able to emerge from bankruptcy with nearly no debt and a significantly smaller store base, a more profitable company. And if Blockbuster can stay afloat and keep shuttering locations every year to drive cash flow, Icahn could make out nicely, Wedbush analyst Michael Pachter says.

The hope for Blockbuster is that by closing some locations, it will direct traffic to other stores. This will lower the company's operating expenses since Blockbuster won't have rent expenses, payroll or utilities for those locales.

Trading a Stock in Bankruptcy: 5 Facts >>

And while, for the most part, creditors are not interested in running a company well -- just getting their money back -- Icahn has a genuine interest in seeing Blockbuster live.

>>>View Carl Icahn's Portfolio

Reports claim Icahn purchased $100 million in debt. If this is true, and Blockbuster continues to shutter stores and turns a profit, Icahn could potentially walk away with $150 million or more, Pachter estimates.

In recent weeks, it also appears that Icahn may have snatched up debt from another movie firm, Metro-Goldwyn-Mayer. Icahn may use his clout here to give Blockbuster an edge over Netflix (NFLX) or Coinstar's (CSTR) Redbox when it comes to receiving content from the studio, says Jeffrey Rogers, president and chief operating officer of Integra Realty Resources.

Icahn's holding in Blockbuster debt gives him veto power over any restructuring plan. While he may be a thorn in Blockbuster's side, Icahn is a friend to investors and will be looking for any way to get money back in their hands as quickly as possible.

Icahn has had a significant history with Blockbuster. In 2004, Icahn gobbled up shares of the company, intent on seeing a merger between now bankrupt Hollywood Video and Blockbuster -- a deal that never materialized.
1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
AAPL $94.02 0.00%
FB $104.07 0.00%
GOOG $683.57 0.00%
TSLA $162.60 0.00%
YHOO $27.97 0.00%


Chart of I:DJI
DOW 16,204.97 -211.61 -1.29%
S&P 500 1,880.05 -35.40 -1.85%
NASDAQ 4,363.1440 -146.4150 -3.25%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs