Blockbuster: Merger Could Interfere with a Good Turnaround Story

4/14 - "Our initial analysis of the deal leads us to tentatively conclude that Blockbuster intends to raise around $500 million through a rights offering, plus an additional $500 - 800 million in incremental debt. The combined company would have around $120 - 150 million of EBITDA before synergies, implying a debt to EBITDA ratio of 6 - 11x. It is not clear to us that Blockbuster will succeed in financing this transaction."

"Blockbuster also preannounced positive Q1 results, expecting adjusted EBITDA of $110 million (our prior estimate was for $80 million) and net income of $30 million (our prior estimate was for $6 million)...We are raising our 2008 estimate for revenue to $5.266 billion from $5.246 billion, and for EPS to $0.15 from $0.03. We are maintaining our 2009 estimates for revenue of $5.040 billion and EPS of $0.40."

"...we believe that investor concern...