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March 12, 2011 1:23 PM

Blockbuster Avoids Liquidation, Bankruptcy Judge Approves Plan for Auction Sale

Posted by Ross Todd

Blockbuster Inc. averted immediate liquidation Thursday as Judge Burton Lifland of Manhattan federal bankruptcy court approved an eleventh-hour deal for the Dallas-based movie rental chain to be sold at auction. The deal was reached after at least 50 lawyers for the company, movie studios, hedge funds, and creditors negotiated for six hours outside Judge Lifland's Manhattan courtroom to reach an agreement, according to this report from Bloomberg News.

The atmosphere outside Judge Lifland's courtroom was one of "good-faith, hard-fought negotiation," says Weil, Gotshal & Manges partner Stephen Karotkin, counsel to Blockbuster in its bankruptcy.

The "stalking horse" bid approved by Lifland came from a group of lenders, including Monarch Alternative Capital LP. (The Monarch group is represented on the matter by Mark Shinderman at Milbank, Tweed, Hadley & McCloy.)

Judge Lifland ruled separately that Carl Icahn and his funds can bid for Blockbuster in the auction. The judge noted that he has yet to rule on a motion from a junior creditor claiming Icahn, a former Blockbuster board member, is an insider at the company and barred from taking part in the auction, Bloomberg reported.

A date was not set for the auction. Blockbuster has proposed April 4, with a bidding deadline of March 31. As The Am Law Daily has previously reported, Blockbuster filed for Chapter 11 in September 2010.

Weil, Gotshal & Manges serves as the company's lead outside bankruptcy counsel. The team is led by Karotkin and fellow bankruptcy partner Martin Sosland. Corporate partners Gil Friedlander and Simeon Gold have also advised on the bankruptcy.

The following is a partial listing of the lawyers who took part in Thursday's proceedings:

-Robert LeHane of Kelley Drey & Warren, for creditors committee members and Blockbuster landlords Developers Diversified Realty Corporation and Weingarten Realty

-Jay Indyke and Richard Kanowitz of Cooley, representing the official committee of unsecured creditors

-Paul Silverstein of Andrews Kurth for Summit Distribution

-Robert Feinstein of Pachulski Stang Ziehl & Jones, representing an ad hoc committee of motion picture studios

-John Rapisardi of Cadwalader, Wickersham & Taft for Icahn.

-James Seery Jr. and John Hutchinson of Sidley Austin, representing a steering group of senior secured bondholders that includes both Monarch and Icahn, who are set to square off at auction.

According to Bloomberg's report, Brian Matsumoto, a lawyer for the U.S. Trustee's office, told Judge Lifland Thursday that he still supports liquidation in the Blockbuster case despite the revised sale proposal.

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