Potential buyers sit tight as Blockbuster awaits its fate

Blockbuster UK could suffer a hit to sales this Christmas if, as seems likely, its US parent files for Chapter 11 bankruptcy later this month.

The news comes as restructuring firms including Hilco and GA Asset Advisers - as well as conventional private equity firms - play a waiting game to see whether the embattled US parent files for Chapter 11 protection before they decide on acquiring parts of the European business, which was put up for sale in March.

Blockbuster UK managing director Martin Higgins said the UK arm’s ability to buy stock would be hampered if its US parent filed for Chapter 11. While it would not cause the UK business major cash flow problems, he said it would affect its ability to enjoy a strong Christmas trading period.

“If I wanted to go for glory in Q4, I may need a cash injection [from Blockbuster Inc] for a few weeks,” said Higgins, who said this would not be available if the US parent was in Chapter 11.

He added: “We have contingency plans in place to ensure we don’t have difficulty in paying people.”

Even without the “cash injection”, he said, there was enough funding in place for adequate stock ahead of Christmas.

US reports have indicated that Blockbuster Inc is likely to file for Chapter 11 by the end of the month.

But Higgins stressed that the UK arm - which has more than 600 stores - was a separate legal entity from Blockbuster Inc, and was “trading well”. He said: “We’re a highly liquid company, because we have no debt.”

He added that the retailer planned to file its accounts for 2009 next week and that its auditors had signed Blockbuster UK off as a going concern.

“The accounts will show a big step up in profitability and a much stronger balance sheet,” he said.

Interested parties are understood to be baulking at the combined price tag of between £40 and £60m for the UK, Danish and Italian arms.

One source at a potential buyer said: “The feeling is that no one is going to get the deal done. I’m interested, but only at the right price. We’ll sit tight.”

Another said: “We’ll await the outcome of the American parent company’s decision.”

It is understood potential buyers would be keen to involve Xtra-vision, the Irish retailer bought out from Blockbuster last year, in the deal. But it is thought Xtra-vision believes there are too many differences between it and its UK rival.

Blockbuster Inc declined to comment on the situation.