Antioco's assertions were made in a letter to Icahnthat not only addressed the criticisms, but alsocontained censure from Antioco and Blockbuster's Boardof Directors. "The turmoil and uncertainty you havecreated threaten to distract the organization andjeopardize our success and could prove damaging toshareholder value," Antioco wrote to Ichan, respondingto Ichan's previous claim that Antioco was "on aspending spree" with Blockbuster shareholders' money.
Ichan's displeasure with Blockbuster's managementmotivated the billionaire to file a proxy statement toinstall his own slate of directors. The directors willbe voted on at Blockbuster's upcoming annual meeting.
Antioco fired back that 2005 capital spending has beencut by more than $100 million compared to 2004, andcorporate overhead has been reduced by $70 million onan annualized basis. Moreover, the CEO writes thatBlockbuster "has been following a well-planned andbroadly communicated strategy that is essential toconfront the significant challenges facing ourindustry."
In particular, Antioco highlights the "End of LateFees" program, which he lauds as a key feature ofthe company's growth strategy. According to Antioco,the program has created the first positive growth inactive membership in nearly two years.
However, the "End of Late Fees" program has receivedwidespread criticism from Wall Street analysts andcustomers alike, as GSR previously reported. Thecompany reaps $250 million to $300 million each yearfrom late fees.
Antioco also addressed another of Blockbuster's major expenditures – its investment in the online rental business. He wrote: "Blockbuster is uniquely positioned to compete in this fast growing business. Given the views of leading industry experts that within three years online rental could represent 20% to 30% of movie rental revenues, it is imperative that we pursue this opportunity, which we believe will mean hundreds of millions of dollars in future operating income for our company."
Ichan's biggest Blockbuster beef, however, is company dividends. According to documents filed with the SEC, Ichan, by his own admission, suggested that Blockbuster "consider at least a one-time extraordinary dividend to shareholders."
The exact amount Ichan suggested wasn't outlined, butAntioco claimed that Ichan demanded an additional $330million in dividends. Some industry experts claim thatIchan is "greenmailing" Blockbuster and that if thedividend is paid, Ichan won't be compelled to moveforward with his slate. However, Antioco said in hisletter: "We truly believe that (offering the dividend)would be tantamount to a liquidation strategy anddestructive to shareholder value."
Ichan did not return calls to GSR.
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