UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
SCHEDULE 14A
(Rule 14a-101)
 
INFORMATION REQUIRED IN
PROXY STATEMENT
SCHEDULE 14A INFORMATION
 
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. __)

 
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[  ] Soliciting Material Pursuant to § 240.14a-12
 
BLOCKBUSTER INC.
(Name of Registrant as Specified in its Charter)

GREGORY S. MEYER, CFA
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
 
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Presentation to Blockbuster Shareholders*
by Gregory S. Meyer, CFA
2010 Annual Meeting of Shareholders of Blockbuster, Inc.
June 3, 2010
*Excerpted from 6/1/10 presentation to RiskMetrics Group
 
 

 
Notice to Stockholders
 
  All stockholders of Blockbuster, Inc. are advised to read Gregory S.
  Meyer’s definitive proxy statement because it contains important
  information, including information relating to the solicitation of
  proxies in support of Meyer for use at the 2010 annual meeting of
  stockholders of Blockbuster, Inc.   The definitive proxy statement and
  GOLD proxy card will be mailed to the stockholders of Blockbuster,
  Inc. and are also available at no charge on the Securities and Exchange
  Commission’s website at www.sec.gov.
1
 
 

 
Summary
§   Situation Summary:   Opposing Gary J. Fernandes
§   Change is warranted at Blockbuster (“BBI”)
    Poor stock performance
    Poor financial performance
    Poor operational performance:   failed execution of multi-channel strategy
§   Blockbuster’s Board has failed to protect shareholders
    Low stock ownership of current directors
    Lack of relevant industry expertise
    Fernandes:   History of Failure to Add Value and Poor Judgment
§   Meyer is a highly qualified, industry relevant, stockholder-aligned, independent
  candidate
    Background/Industry Experience/History of Sound Strategic Advice
    Greater stock ownership = greater aligned interests with shareholders
    Actively working on plan to address BBI’s challenges/3-Phase Plan for Turnaround
§   We asking shareholders to return a GOLD proxy card and vote for Meyer
 
 
 

 
Situation Summary
§   Annual Meeting of Shareholders:   June 24, 2010 (delayed from
  original date of May 26, 2010)
§   Meyer initially identified two Blockbuster directors who did not
  appear to serve the best interests of shareholders:   James W. Crystal
  and Gary J. Fernandes
§   Meyer initially opposed Mr. Crystal.   Blockbuster Board announced on
  May 21, 2010 that Crystal would not stand for re-election
§   Meyer revised proxy materials to oppose Gary J. Fernandes due to:
    5 years of failure to produce shareholder value
    Low share ownership
    Lack of relevant industry experience
    Overly cozy relationship with Blockbuster CEO/Chairman Jim
  Keyes
 
 

 
CHANGE IS WARRANTED AT
BLOCKBUSTER
Gary J. Fernandes has sat on Blockbuster’s board for 5+ years during a
period of significant market share erosion and financial underperformance
We ask all shareholders to return a GOLD proxy card and vote for Meyer
 
 

 
Blockbuster Stock Performance Since 2005
§   Equity Market Cap of Blockbuster was > $1.6 billion when Fernandes
  joined the board in 2004.   Today the equity market cap is < $75
 
million .   This represents a loss of over $1.5 billion to shareholders
  in Blockbuster since Fernandes joined the Board.
§   $1 invested in Blockbuster stock in 12/04 is worth $.05 today
§   $1 invested in Netflix stock in 12/04 is worth > $9.00 today
§   $1 invested in the Hemscott Group Index* in 12/04 is worth $1.30
  today
§   Board accountability would suggest that the status quo is not serving
  the interests of BBI shareholders.
§   The Hemscott Group Index consists of the following issuers: Blockbuster Inc. (Class A common stock); Hastings Entertainment, Inc.; Interlink-US-Network, Ltd.; Netflix, Inc.;
  Trans World Entertainment Corporation; and Xinhua China Ltd.
 
 

 
Blockbuster has Significantly Underperformed Peer Group
Since Fernandes Joined the Board in December 2004
6
*
The Hemscott Group Index consists of the following issuers: Blockbuster Inc. (Class A common stock); Hastings Entertainment, Inc.; Interlink-US-Network, Ltd.;
Netflix, Inc.; Trans World Entertainment Corporation; and Xinhua China Ltd.
  Table and graph taken from Blockbuster Inc.’s 10-K filed 3/16/10.
 
  
12/04
  
12/05
  
12/06
  
1/08
  
1/09
  
1/10
 
Blockbuster Inc. Class A common stock
  
100.00
  
39.48
  
55.69
  
36.00
  
13.68
  
7.05
 
 
 
 
 
 
 
 
Hemscott Group Index*
  
100.00
  
91.46
  
91.15
  
78.67
  
75.74
  
130.31
 
 
 
 
 
 
 
 
S&P 500 Index
  
100.00
  
104.91
  
121.48
  
128.16
  
80.74
  
102.11
 
 
 

 
Poor Financial Performance and Forecasting = Missed
Guidance and Loss of Credibility, but Not Loss of Bonus
§   Overall consumer spending on DVD and Blu-ray rentals was up in 2009. Rentrak Corp. reports rental
  spending having increased 4.2 percent to $6.5 billion for the year
§   However,   in 2009 BBI twice missed guidance, even after re-affirming such guidance to investors just
  months before period end
§   2009 EBITDA Guidance Missed Twice:
    March 2009:   2009 Fiscal EBITDA Guidance originally set at $305 to $325 million
    May 2009:   Guidance re-affirmed
    Aug 2009:   Guidance lowered to $270-$290 million
    Nov 2009 :   Guidance re-affirmed
    Jan 2010:   Guidance lowered drastically to $195-$205 million
§   Credibility crisis at the financial controls level
§   Despite missing guidance twice, the Compensation Committee, chaired by Gary Fernandes, awarded
  CEO Jim Keyes 80% of his target bonus and CFO Thomas Casey 100% of his target bonus for the
  year 2009.
§   Additionally, in 2010 CFO Casey’s salary was increased from $500,000 to $650,000 and he was
  granted a $400,000 retention bonus, despite continued weak financial performance and a plunging
  stock price.   Bonus partially awarded upon completion of ‘restructuring’ regardless of outcome to
  stock price (single performance metric not aligned with shareholder interests).
 
 

 
Poor Execution of its Multi-Channel Distribution Strategy
§   While Blockbuster’s base of brick-and-mortar stores have suffered, it’s
  multi-channel strategy has been poorly executed:
§   Online/By Mail Subscribers:   As of December 31, 2005, there were
  approximately 1.2 million BLOCKBUSTER Online subscribers vs. 4.2
  million for Netflix, a difference of 3 million.   As of December 31,
  2010, Netflix had grown to over 12 million subscribers while
  Blockbuster had last reported just 1.6 million subscribers as of October
  2009.   For every one subscriber Blockbuster added during that time
  period, Netflix added 20.
§   Kiosks:   Redbox locations grew from <200 in early 2005 to 24,000+
  kiosks during Fernandes’ tenure on the Blockbuster Board, generating
  $773.5 million in revenue in 2009 from kiosks.
§   To date, Blockbuster has not reported a single dollar of revenue from
  its kiosk deal with NCR, due to poorly negotiated terms- yet these very
  kiosks are competing with Blockbuster’s own stores.
 
 

 
Blockbuster Directors Have Extremely Low Stock
Ownership
§   Stock Ownership of Non-Management Blockbuster Director Nominees
  is shockingly low
§   The average stock ownership of Blockbuster’s six non-management
  director nominees is 169,511 ‘A’ shares.   This represents < 28% of the
  stock owned by Mr. Meyer’s 620,000 ‘A’ shares.   The current market
  value of this average 169,511 shares is less than $60,000 at the current
  share price of $.35 per share.
§   How can shareholders feel that the interests of this Board are aligned
  with their interests with such low stock ownership?
9
We ask all shareholders to return a
GOLD proxy card and vote for Meyer
 
 

 
Fernandes has No Relevant Home Entertainment
Industry Experience
§   Fernandes has no operating experience in the video rental industry nor
  in the broader home entertainment industry
§   BBI proxy statement claims “Mr. Fernandes brings technology
  expertise to the Board through his executive management experience
  at several technology-based companies, including EDS,”
a firm he left
  over 12 years ago.
§   What good has Mr. Fernandes’ ‘technology expertise’ done for BBI
  stockholders who have watched the company lose significant market
  share to competitors that
outmaneuvered it using innovative
  technologies
such as DVD rental kiosks (Redbox) and streaming video
  (Netflix)?
§   Any expertise Fernandes had in applied software from his EDS days
  has clearly not translated into an ability to intelligently navigate the
  home entertainment sector not to add value for BBI shareholders
10
 
 

 
Fernandes and Keyes Relationship: Too Cozy
§   Mr. Fernandes was on the Board of 7-Eleven, Inc. the entire time that
  Jim Keyes was CEO of that company from 2000 to 2005
§   Fernandes and Keyes, among others, were named defendants in several
  2005 shareholder lawsuits regarding 7-Eleven alleging breach of
  fiduciary duties owed to shareholders in connection with an inadequate
  offer price for a going-private transaction
§   Mr. Fernandes was a member of Blockbuster’s Nominating Committee
  during the search that resulted in Mr. Keyes being appointed CEO of
  BBI in 2007
§   Fernandes was Chair of BBI’s Compensation Committee in 2009 when
  Keyes was awarded 80% of his target bonus despite financial results
  that missed guidance
twice and a stock price that was down 50% on
  the year
§   Is Fernandes able to be objective with respect to Keyes given their past
  history and close personal relationship?
 
 

 
Fernandes:   History of Value Destruction or Stagnation
§   Mr. Fernandes is the longest serving director candidate up for re-election on
  the Blockbuster Board, having overseen more destruction in shareholder value
  than any other director nominee
§   Other companies affiliated with Mr. Fernandes have not faired very well
  either:
    Mr. Fernandes joined the Board of Computer Associates, now CA
  Technologies, in May 2003
    Since that time, the stock price of CA has shown roughly a 0% return
  compared to +40% return for IBM, +181% return for ORCL and +250%
  return for HPQ
§   Per Blockbuster’s proxy statement, in November 1998, Fernandes founded
  Voyagers The Travel Store Holdings, Inc., a chain of travel agencies, and was
  President and sole shareholder of Voyagers.
Voyagers filed a petition under
  Chapter 7 of the federal bankruptcy laws in October 2001.
 
 

 
Fernandes Repeatedly Exhibited Questionable Judgment
§   Fernandes on Board when Meyer sent 2005 letter (Exhibit 1) urging
  Blockbuster to develop a kiosk strategy to save the Company $140 million
  per year
    Recommendation was ignored to the detriment of Blockbuster
  shareholders in the ensuing years
§   Fernandes was on the Blockbuster Board that gave ‘full support’ of offer to
  buy failed electronics chain Circuit City in 2008 at a time when
  Blockbuster should have been focusing on its core operations
    An expensive and distracting decision at a critical time when Netflix
  and Redbox were gaining significant market share in the DVD rental
  segment
§   Related Party Transaction:   Fernandes holds interest in 2 real estate
  partnerships that lease buildings to Blockbuster
    Despite the closing of thousands of BBI locations over the past several
  years, the stores owned by Fernandes’ partnerships have remained
  open
    Material or not, this exhibits poor judgment
 
 

 
Diversity of Age on BBI Board is Lacking
§   6 of the 7 Netflix directors are ≤   52 yrs of age
§   0 of the 7 Blockbuster director nominees are < 52 yrs of age
§   Average age of BBI Board candidates is 61.7 vs. 51.4 for NFLX and
  53.71 for CSTR
§   This is inconsistent with Blockbuster’s Nomination Committee Charter
  which states:
    The Nominating Committee has the responsibility to “review with
  the Board the current composition of the Board in light of the
  characteristics of independence, diversity,
age , skills, experience,
  availability of service to the Company and tenure of its members,
  and of the Board’s anticipated needs”
 
 

 
Reason for the Solicitation
§   Board has not acted in the best interests of its stockholders
§   Board lacks sufficient expertise and alignment of interest w/stockholders
§   Current board has presided over massive destruction of shareholder value
  and is asking shareholders to support the status quo
§   To replace a director with minimal home entertainment industry
  experience, relatively low share ownership, and a five year governance
  track record of year over year dramatic share value erosion
§   Meyer seeks only one of seven board seats
§   This represents a moderate proposal to bring one highly qualified,
  independent director with significant industry experience to act as a
 
shareholder advocate to the Board of Blockbuster to replace a director who
  has had over 5 years on the board, has significantly lower share ownership,
  and no experience in the home entertainment industry
§   Meyer is not seeking control of the Board
 
 

 
Background on Gregory S. Meyer, CFA
§   Strong Industry and Financial Experience
§   Founded DVDXpress in 2001
    Pioneer in DVD rental kiosk channel
    Grew to 1000 locations in 30 states and the UK, serving millions of customers
    Sold to Coinstar in 2007, Merged with Redbox division in 2009
§   Meyer headed DVDXpress line of business at Coinstar through 2009 when it was
  merged with Redbox
    Experience is relevant and recent
§   Strong financial background
    Fixed income trading experience at bulge bracket investment bank- valuable
  given BBI’s debt-heavy cap structure
    Dartmouth Economics Major summa cum laude
    Dartmouth Tuck MBA with focus on Finance/Accounting
    Chartered Financial Analyst Designation
    Qualifies as Audit Committee Financial Expert
 
 

 
Meyer has Relevant Industry Experience
§   Knowledge of Kiosk Industry and how to improve the relationship with NCR to result in
  an improved economic outcome for BBI
    Ability to improve structure and execution of the deal- many mistakes being made
  now
    Knowledge of how to effectively address kiosk competitors
§   Broad and deep understanding of all aspects of the home entertainment retail
  marketplace including:   brick-and-mortar stores, by-mail, kiosk-based, and online
  distribution strategies for home entertainment products
§   International Operating Experience:   useful for kiosk/ON DEMAND expansion to
  Europe and sale of European store-based assets
§   Industry Contacts:   Direct call access to C-level executives at all major home
  entertainment distribution companies
    Brick-and-mortar chains (private)
    Technology providers
    Content providers
    Distributors, rack-jobbers, and salvage companies
 
 

 
Track Record of Sound Strategic Advice
§   In 2004, Meyer met with Blockbuster EVP, Finance, Strategic
  Planning and Development Frank Paci to review the strategic case for
  Blockbuster’s involvement in the DVD rental kiosk channel
§   In 2005, Meyer sent a formal letter to a key member of Blockbuster’s
  Board of Directors alerting them of the need to enter the DVD rental
  kiosk channel as a way to reduce costs by $140 million annually and
  provide a new level of convenience for customers
§   The Blockbuster Board and management ignored the suggestion and
  the channel altogether allowing competitor Redbox to expand to over
  24,000 locations and an expected 2010 video rental market share
  approaching 30%
§   A copy of the letter was filed as a DFAN14A by Meyer on April 12,
  2010
 
 

 
Meyer Stock Ownership Significantly Greater than Fernandes’
19
 
 

 
Adding Meyer Brings Age Distribution of BBI Board
Closer to Industry Norm
Board of
Directors
Netflix
Coinstar
BBI w/
Fernandes
BBI w/ Meyer
Average Age
51.43
53.71
61.71
57.71
High Age
66
67
80
80
Low Age
42
34
52
38
20
6 of the 7 Netflix directors are ≤   52 yrs of age
0 of the 7 Blockbuster director nominees are < 52 yrs of age
Average age of BBI Board candidates is 61.7 vs. 51.4 for NFLX and 53.71 for CSTR
From Blockbuster’s Nomination Committee Charter:
  -The Nominating Committee has the responsibility to “review with the Board the
  current composition of the Board in light of the characteristics of independence,
  diversity,
age , skills, experience, availability of service to the Company and tenure
  of its members, and of the Board’s anticipated needs”
 
 

 
Meyer’s 3 Phase Plan for Blockbuster Turnaround
§   Phase 1:   Address Immediate Liquidity Challenge
    Viable structure identified and in discussions with constituents
§   Phase 2:   Stabilize cashflows from brick-and-mortar store base
    Same Store Sales should be stabilizing and turning higher due to:
    Massive reduction in Industry Capacity (Movie Gallery/Hollywood
  Video store closures)
    This represents $1.4 billion of revenue up for grabs
    28-day ‘exclusive’ window with Warner, Fox, Universal represents a
  huge competitive advantage
    Poorest performing stores have been closed already resulting in a
  higher quality store portfolio than any time in the past few years
§   Phase 3:   Generate meaningful revenue/EBIT from non-store distribution
  channels
    Leverage strong brand and studio relationships
21
 
 

 
Phase 1:   Address Immediate Liquidity Needs
§   BBI’s biggest near term challenge is liquidity issue
§   Meyer has developed a restructuring plan to right-size capital structure and
  significantly reduce BBI’s indebtedness and annual interest obligations in a
  manner that is non-dilutive to current equity
§   Plan involves participation from BBI’s key vendors who also have a vested
  interest in the long-term health of one of its most important customers- BBI is
  the only remaining nationwide non-discount video rental chain
§   Plan has been vetted by industry veterans, financial restructuring experts and
  legal advisors, and has been deemed viable
§   Meyer is actively engaged in discussions with strategic studio partners,
  financial advisory firms, law firms, subordinated noteholders, secured
  noteholders, and equity investors to develop a consensus on this structure that
  provides optimal value to shareholders and fair treatment of all stakeholders.
§   This outcome provides far more value to shareholders than the standard ‘debt-
  for-equity’ swap on the table which may result in dilution of equity by 95%
22
 
 

 
Phase 2:   Stabilize Cashflow from Core Store Base
§   Drive traffic to stores via intelligent/low-cost/viral advertising.   Improve store
  experience and customer service.   Optimize pricing to provide more compelling/flexible
  customer value proposition.   Re-engage alienated customer base (and store employees)
  to achieve organic turnaround in same store sales.   Cross fertilization of store-based best
  practices from bottom up- why are some stores so profitable and others money losers?
  What can BBI offer in store that Netflix and Redbox can’t?   Look at what other
  successful brick-and-mortar video rentailers (such as the 600-location Family Video
  chain) are doing.
§   Outsource/Optimize ordering/scheduling of independent titles to 3 rd party to reduce
  costs and improve flow of customers into stores between major releases
§   Optimize portfolio of physical stores per Movie Gallery/Hollywood Video closures and
  look for lease re-negotiation opportunities, smaller footprint, retail sublease
  opportunities
§   Continue to reduce costs:   SG&A in Q1 2010 > Q1 2009 despite reduced store base
§   Rationalize cost structure to reflect reduced revenue base:
    242,615 sf class A office space at Dallas HQ/850,000 sf distribution center in
  McKinney, TX, 38 by mail distribution centers throughout US, country head offices
  in Buenos Aires, Argentina; Toronto, Canada; Uxbridge, England; Milan, Italy;
  Herlev, Denmark; and Mexico City, Mexico
23
 
 

 
 
Phase 3:   Revamp Alternative Channels to be Profitable
§   Review the NCR Kiosk Agreement for flexibility to modify/improve terms
    Review kiosk growth plans
    Review kiosk profitability plans- NCR has installed in a lot of subpar locations but
  rolling contract expirations among competitors provides attractive opportunities for
  securing top tier locations over next 1-3 years.
    Inventory mix and GUI presentation can be tweaked to generate greater revenue
  share for BBI
§   Review Strategy for Online/By Mail Subscription Model
    Significant 28-day window offering competitive advantage vs. NFLX should be
  leveraged to grow this line of business
    Review status of CE partnerships, especially among game console manufacturers:
  Sony PS3, Microsoft X-box, Nintendo Wii
§   Review Blockbuster On Demand results
    Position for profitable growth
    Why are strategic partnerships in the cable sector moving so slowly?
24
 
 
 

 
 
 
 
 
 

 
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