Blockbuster bids on Circuit City
UPDATE: Electronics retailer questions financial viability of $6 a share offer
By Danny King -- Video Business, 4/14/2008
APRIL 14 | Blockbuster said early today that it made an offer for at least $6 a share for Circuit City in February and that the No. 2 electronics retailer hadn’t fulfilled a request for due diligence necessary to make the bid “definitive.”
Circuit City, whose stock price surged about 30% on the news, questioned whether Blockbuster could finance the acquisition and said more financing information would be required for it to respond to the offer.
Blockbuster, the largest U.S. movie-rental chain, made the offer in a Feb. 17 letter to Circuit City CEO Philip Schoonover, who hasn’t responded to the bid. The offer was at least 27% more than Circuit City’s $4.74 closing price on Feb. 15, the previous day the stock traded.
With the bid, Blockbuster, in the midst of a turnaround as its losses from its Total Access online-subscription program have narrowed, is trying to boost home-entertainment sales and profits by integrating content such as DVDs and downloads with the media-delivery products of Circuit City. Last month, Blockbuster said fourth-quarter earnings quadrupled.
“Our proposal offers Circuit City a significant premium to its existing stock price and creates a game-changing retail concept with a sustainable competitive advantage,” Blockbuster CEO James Keyes said in a statement early today. “We believe the combination will result in a compelling consumer proposition that will drive significant revenue and margin enhancements as well as cost synergies.”
Circuit City, which said Blockbuster has previously made a similar offer, questioned whether Blockbuster would need to refinance its debt given Circuit City's larger market value. Blockbuster's market value on Feb. 15 was about $600 million, or about three-quarters of Circuit City's $800 million market value that day.
"While willing to engage in discussions to further understand Blockbuster's proposal, having shared certain information with Blockbuster, Circuit City is unwilling to provide Blockbuster with additional detailed due diligence information and embark on a highly conditional undertakinig until these questions are answered satisfactorily," a statement from the consumer electronics retailer said.
Circuit City last week reported a fiscal fourth-quarter operating loss, as weaker video-equipment sales offset revenue gains for flat-panel TVs and videogaming products. The company, which has lost money for five of the last six quarters, has received pressure this year from shareholder Mark Wattles to replace its board. Wattles, who founded movie-rental chain Hollywood Entertainment and whose Wattles Capital Management owns about 6.5% of Circuit City, has called the company’s turnaround effort “disastrous.”
Blockbuster today said it made the bid public to give Circuit City shareholders a chance to respond, adding that it looked “forward to engaging in further conversations with Circuit City and reaching an agreement as soon as possible.”
Circuit City, whose stock price surged about 30% today, questioned whether Blockbuster could finance the acquisition and said more financing information would be required for it to respond to the offer.
Circuit City, whose stock price surged about 30% today, questioned whether Blockbuster could finance the acquisition and said more financing information would be required for it to respond to the offer.
Circuit City, whose stock price surged about 30% today, questioned whether Blockbuster could finance the acquisition and said more financing information would be required for it to respond to the offer.
