Blockbuster Bungled Takeover, Icahn Says

Financier Carl Icahn, Blockbuster Inc.’s largest individual shareholder, with a 9.7% stake, said the movie rental leader bungled the attempted takeover of its top rival, according to a regulatory filing Thursday.

Icahn vowed to nominate his own candidates for Blockbuster’s board. Blockbuster shares rose 6.2% on news of the filing with the Securities and Exchange Commission.

Icahn accused Blockbuster Chief Executive John Antioco of going on a “spending spree” with shareholder money while accepting an “unconscionable” pay package potentially worth more than $50 million in cash and stock.

The financier also asked Blockbuster to make a one-time dividend payment to shareholders.

Dallas-based Blockbuster’s shares rose 57 cents to $9.70 on Thursday on the New York Stock Exchange.

Blockbuster, in turn, accused Icahn of looking for a quick buck out of the company’s failure to acquire its largest rival, Hollywood Entertainment Corp.

“He was heavily invested in our acquisition of Hollywood, and that acquisition didn’t happen for reasons outside of our control. He is looking for a short-term payback,” Blockbuster spokesman Randy Hargrove said.

Antitrust regulators at the Federal Trade Commission had raised concerns about the pricing power of a combined Blockbuster and Hollywood, which would have controlled half or more of the nation’s rental industry.

Blockbuster contended that it also competed against online rental services such as Netflix Inc. and in-store purchases of DVDs, making its market presence less formidable.

Hollywood’s board has agreed to an acquisition by the No. 3 rental chain, Movie Gallery Inc. Hollywood shareholders are scheduled to vote April 22.

Icahn said in his filing that his funds paid $147 million, including commissions, for 11.48 million shares of Class A stock and 5.57 million shares of Class B stock in Blockbuster.

“Mr. Icahn also expressed his opinion that management of [Blockbuster] mishandled the failed attempt to acquire Hollywood Entertainment Corp., which would have been extremely beneficial” for Blockbuster, according to the filing.

Icahn accused Antioco of moving up the company’s annual meeting to May 11 from July to frustrate anyone who wanted to challenge the incumbent directors by giving them only 10 days to notify the company.

Icahn said Antioco rebuffed his request for more time to file nominees.

Icahn said in a letter to Antioco that he was determined to nominate directors who would curtail spending, control bonuses, pay bigger dividends and air any offers for the company. He vowed to try again in 2006 if his slate failed at the May meeting.

In the letter, Icahn highlighted a newspaper report about the CEO’s 2004 compensation, which included $7 million in salary and bonus, restricted stock that could be worth $26.8 million and options for 5 million more shares.

Last year, Blockbuster lost $1.25 billion and its stock fell 47%, although about half of the share loss was offset by a one-time dividend.