Money Matters - Simplified

This DVD Is Getting Interesting

You don't need to browse the shelves of your local Blockbuster (NYSE: BBI) to check out its latest drawn-out saga. There's a pretty good battle brewing in the DVD rental chain's boardroom. An activist shareholder is waging a proxy battle to win a director's seat, and the conflict's starting to get ugly.

Gregory Meyer owns 620,000 shares in Blockbuster, good for a 0.44% stake in the struggling rental chain. That big number nonetheless translates into a monetary position of less than $230,000, given Blockbuster's penny-stock close yesterday.

Meyer was also the founder of DVDXpress, a small DVD rental kiosk company that cashed out to Redbox parent Coinstar (Nasdaq: CSTR) three years ago. He wants to replace James Crystal, a 72-year-old insurance executive who -- according to Forbes -- sits on several other insurance and banking-company boards.

On paper, the outsider would seem to have the edge. Blockbuster's been making a push into Redbox's turf through NCR's (NYSE: NCR) Blockbuster Express kiosks. However, given Blockbuster's iffy financial circumstances, you can never have too many financial veterans onboard.

This would seem to be an inconsequential board tussle, but Blockbuster is making it personal. The company released a surprisingly brash press release yesterday, urging shareholders to vote for Crystal. That's perfectly natural, but the release also goes to great lengths to attack Meyer's credibility:

  • "We strongly believe that this is not the time for a disruptive influence such as Meyer on the Board." In other words, Blockbuster is waist-deep in a comprehensive turnaround strategy. The last thing it wants is a passionate outsider offering up potentially conflicting ideas.
  • "How he is qualified to contribute as a member of your Board to the turnaround of a multi-billion dollar business is unclear." This rip comes as Blockbuster dismisses DVDXpress as a "nominal" company.
  • "These haphazard ideas are not helpful, demonstrate Meyer's naivete, and constitute a distraction from the hard work required to address the pressing challenges facing our company." This knock comes after listing some of Meyer's ideas. Even if Blockbuster feels the suggestions aren't helpful, there's no point in calling Meyer naive.

Why is Blockbuster so touchy? According to the company, Meyer has threatened to distract and embarrass the company's board and executives if he is not added to the company's board. If true, that's a classless move on Meyer's part. But Blockbuster is embarrassing itself with a press release loaded with petty name-calling. 

Blockbuster's in a tough position. It can't necessarily praise Crystal's tenure, because the stock has tanked roughly 95% since he was brought on in early 2007. The company points to the recent liquidation of Movie Gallery as a sign of its survival instincts, but that really only highlights the flaws in its own model.

Coinstar and Netflix (Nasdaq: NFLX) are growing briskly, even as Blockbuster sputters. If Meyer is a distracting outsider, the company should remedy the situation by finding forward-thinking new faces who'll be more amicable in the boardroom.

This is a time for action and change. Public insults don't have a place in this screening.

© 2010 UCLICK L.L.C.