Blockbuster Inc. is going bust.

The struggling movie rental outfit is set to file for Chapter 11 bankruptcy tomorrow and receive $125 million in debtor-in-possession financing to forestall the inevitable liquidation, according to Bloomberg News. Nimbler competitors such as NetFlix Inc. (NASDAQ:NFLX) have eaten Blockbuster’s lunch for years and will continue to do so.

For reasons best understood by him,  billionaire Carl Icahn took a shine to the retailer and got on the board in 2005 after a successful proxy fight.  Chief Executive John Antioco left the Dallas-based company in 2006 after Icahn complained about the size of his bonus.  Many investors wondered if Icahn would do more than saber rattle and hope for a big profit.   Ichan has  stuck with the company, which has stopped paying  interest on its $900 million in debt.  But even the super-hyper investor has his limits.

“He resigned as director in January and in March sold most of his 16.9 percent common share stake,” according to Bloomberg, adding the billionaire  “who bought about one-third of Blockbuster’s bonds, will join with a group of creditors in swapping their debt for all of the video-rental company’s stock.”

Why?  To sell the company for scrap.

Blockbuster is done.  It failed to adapt to changing market conditions.  All that’s left are arguments about the funeral arrangements.

–Jonathan Berr

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