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The New York Times

The New York Times

BUSINESS

Icahn Slate Wins Seats on Blockbuster Board
By ERIC O’KEEFE
Published: May 12, 2005

DALLAS, May 11 - Carl C. Icahn, the billionaire financier who has been engaged in an increasingly hostile fight with the executives of Blockbuster, scored a significant victory on Wednesday when he was elected to the board along with two fellow dissidents.

While a final tally will not be known for several days, the company's general counsel, Edward B. Stead, acknowledged that Mr. Icahn's slate of nominees had prevailed in the shareholder vote at the company's annual meeting here. Mr. Icahn said his proxy solicitors had told him his group appeared to have received 77 percent of the votes cast.

Though John F. Antioco, the chief executive and a frequent target of Mr. Icahn's criticism, was removed as chairman, his absence will probably be brief. Mr. Stead said the board, with the support of Mr. Icahn, intended to convene a meeting to put Mr. Antioco back on the board as chairman.

"We fully expect to have continuity in the management of the company," Mr. Stead said.

Mr. Antioco had threatened to resign if he was not re-elected, and the company said he would have been entitled to a payment of as much as $54 million. But his reappointment would keep him with the company, and Mr. Antioco said in a statement, "I continue to believe in the business strategy we have been implementing."

Still, the outcome was a rebuke to Mr. Antioco. Mr. Icahn, who did not attend the meeting, issued a statement afterward saying that he was "elated by this grand victory for corporate governance." He went on to thank the shareholders who had voted for him and the other two nominees on his slate, Strauss Zelnick, a former chief executive of BMG Entertainment, and Edward Bleier, a former executive at Warner Brothers. They succeed Peter A. Bassi and Linda Griego on the seven-member board.

Mr. Icahn had positioned the vote as a referendum on the tenure of Mr. Antioco. Mr. Icahn, Blockbuster's largest shareholder, with a nearly 10 percent stake, had grown increasingly vocal in recent months about the company's perceived inability to cut costs and stem a decline in revenue in the highly competitive video rental market. He suggested that the company pay a $330 million dividend to shareholders and then called for the sale of Blockbuster.

He also singled out Mr. Antioco's compensation package as "unconscionable" and faulted him in the company's unsuccessful attempt this year to take over Hollywood Entertainment, its largest competitor and another major Icahn holding.

Mr. Antioco received $7 million in salary and bonus, five million stock options and nearly $27 million worth of restricted stock in 2004, a year in which Blockbuster lost $1.25 billion.

The compensation issue was part of a tense exchange between Mr. Antioco and Mr. Icahn during a conference call last Thursday to discuss the company's first-quarter results, a $57.5 million loss.

Mr. Icahn, according to a transcript of the call, said, "Another criticism I have made is that the bonus of $50 million, I think, to say the least, is egregious."

That drew a sharp retort from Mr. Antioco, who said Mr. Icahn was mischaracterizing his pay.

"The cash received last year was $7 million," Mr. Antioco said. "The bonus was based on the successful completion of some significant financial hurdles, and it was based on the successful implementation of all our new business initiatives."

Mr. Antioco said Mr. Icahn should "stick to the facts that have to do with the business and how we're running the business as opposed to things you think are inflammatory to get attention."

The facts of the business, for Blockbuster, at least, are sobering. Industry analysts see the demand for video rentals declining 4 percent a year. Online rental companies like Netflix and mass merchandisers like Wal-Mart Stores continue to erode the company's once-dominant market share.

Mr. Icahn has a long reputation as an activist investor and corporate raider. He took over Trans World Airlines in the late 1980's and also successfully agitated for the breakup of RJR Nabisco Holdings into food and tobacco units.

Most recently, Mr. Icahn sought to buy Mylan Laboratories in an effort to block its acquisition of King Pharmaceuticals. While his overtures were rebuffed, Mylan backed out of its deal with King after King said it had to restate its results.

Over the years, Mr. Icahn has bought dozens of companies and threatened to buy dozens of others.

Mr. Icahn did give a hint on Wednesday that his opinion of Blockbuster was not entirely negative.

"Additionally," he said in his statement, "I should also like to say that my wife and I are good customers of Blockbuster and would like to commend the friendly attitude and efficient manner of the rank-and-file employees."