Blockbuster Rumored for Chapter 11: Shares Cheaper Than a Late Fee

The movie rental business is supposed to be recession-proof. That was true for Netflix (NFLX), which posted great results at the end of 2008 and said this year would be even better.

But that hasn’t panned out for Blockbuster (BBI), which is  reportedly mulling a Chapter 11 bankruptcy protection filing. No confirmation from the company yet, but investors aren’t waiting around to find out: BBI shares are now less than a quarter a piece. At the beginning of the day they traded at 96 cents. UPDATE: Blockbuster confirms it has hired law firm Kirkland & Ellis “to advise it with respect to its ongoing financing and capital raising initiatives” but tells Reuters that it can self-fund its debt through the rest of the year and that it “does not intend to file for bankruptcy.”

A little less than a year ago, you may recall, Blockbuster was trying to buy Circuit City for about $1 billion or so. But investors couldn’t see the appeal of mashing a struggling retailer with a struggling video rental company, and the deal fell through. Circuit City is currently in liquidation.

Add this to Blockbuster–and Yahoo (YHOO)–investor Carl Icahn’s list of recent disappointments.

[Image credit: travdir]