Novice Investing - Another Chapter for Movie Gallery

Date: Monday 13th 2008f October 2008 06:13:07 PM

Another Chapter for Movie Gallery - 10/09/2007

By: Hari Wibowo

Movie Gallery Inc. (MOVI) tumbled to as much as 50% on reports that it is filing for chapter 11 bankruptcy. It is finally official. We have predicted Movie Gallery's demise will come sooner rather than later. With chapter 11 bankruptcy, Movie Gallery's creditors will be in front of the line to claim its stake for Movie Gallery. Most likely, they will convert their debt into new sets of shares. In the meantime, existing shareholders will have to be contempt with zero value of their shares.

Recently, Movie Gallery is trading at $ 0.26 per share. Don't bank on it to rebound to its glorious levels. It might rebound a few bucks up due to short coverings and speculants but in the long run, the old shares will be wiped out and replaced with the new set of shares.

Back in June 2006, I said that there would be no suitor for Movie Gallery. At the time, we brought up Netflix and Blockbuster as potential suitors. While the chance of these companies to acquire Movie Gallery is remote, the chance has become bigger after Movie Gallery filed chapter 11 bankruptcy. Why? Because by then, Movie Gallery has become debt free and potential suitors can grab up any valuable assets that they can utilize at a much depressed price.

What would be of value to potential suitors? Most likely is Movie Gallery's 4600 stores. While presently Netflix and Blockbuster doesn't feel the need to expand its presence by acquiring Movie Gallery's stores, other retailers might be interested. Companies such as RadioShack (electronic retailers), Coinmach (laundromat operators), McDonalds (fast food restaurants) or even Apple Stores (AAPL) will be interested if the locations are not overlapping their present state.

Movie Gallery plans to exit bankruptcy protection by early 2008. It is a relatively brief timing but if they are on schedule, Movie Gallery can be the next stock you should watch for (after bankruptcy). This is because as the debt is wiped out and unprofitable stores are closed, the new Movie Gallery can still be generating profits.

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Disclaimer: The sole purpose of this article is educational. This article is merely the opinion of the writer and is not in any way a buy/sell recommendation regarding Movie Gallery Inc.. (MOVI) or any other securities.

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