Video rental firm Blockbuster looking to raise capital, denies bankruptcy rumours

Blockbuster Inc., whose video rental stores have been pressured by the growing online market, said Tuesday it has hired a law firm to help find ways to raise capital, but that it does not intend to file for bankruptcy.

"We have hired Kirkland & Ellis for assistance with our ongoing finance and capital-raising initiative," said Karen Raskopf, Blockbuster spokeswoman. "We do not intend to file for bankruptcy." She also said the company was in the process of searching for a financial adviser, but has not selected a firm to work with.

The law firm was asked to evaluate restructuring options for the company, which may include a ''pre-packaged'' or ''pre- arranged bankruptcy,'' in which much of the restructuring work is completed out of court, the person said. A pre-packaged filing is more advanced than a pre-arranged bankruptcy as it includes agreements from creditors about the outcome of the company's reorganization.

Shares of Blockbuster plunged more than 77 per cent on Tuesday, and the New York Stock Exchange halted trading, amid reports that the company had hired legal counsel for a bankruptcy filing. The stock closed at 22 cents.

Blockbuster is in an increasingly difficult position as the ground beneath the video-rental market has shifted and the company has faced stiff competition from online rival Netflix Inc., pioneer of DVD rentals by mail. Concern over Blockbuster's financial health sent shares of Netflix surging almost 6 per cent Tuesday.

Blockbuster, which operates more than 7,500 stores worldwide, has tried to reinvent itself to become a more viable digital competitor. After years of declining same-store sales, Blockbuster has narrowed its losses and posted same-store sales increases in the three most recent quarters.

Netflix is meanwhile thriving, in part because it has invested aggressively in an online movie service that is attracting new subscribers. The Los Gatos, California, company recently passed 10 million subscribers and its stock has nearly doubled since late October. Netflix shares jumped sharply on Blockbuster's news before edging back to trade up 5.9 per cent at $36.36 in 4 p.m. trading on the NASDAQ Stock Market.