Blockbuster has said its unsolicited bid for electronics chain Circuit City Stores is worth up to $1.3bn, and added that it had the backing of billionaire investor Carl Icahn, a Blockbuster shareholder. The offer of $6 to $8 per share is more than double Circuit City's Friday closing price of $3.90, which was down from $18.75 a year ago. On Monday, the shares were up 33% at $5.19.
Blockbuster presented the idea of the merger of the two retailers as a means to cut costs, exploit the growing convergence of media content and electronic devices, and benefit from selling complementary products. Cost savings would come from combining systems and back-office operations, the "rationalization of the companies' real estate" and better deals with vendors. However, the move has left most analysts unconvinced, with several skeptical over the value of the deal.
In response, Circuit City said Blockbuster had been unable to satisfy concerns that it could finance the bid. It added that while it was open to further talks, it was unwilling to participate in due diligence with Blockbuster.
Blockbuster CEO Jim Keyes said he was confident that his company could complete the transaction. But as of 6 January, its filings reveal that it only had $184.6m in cash on its balance sheet. Keyes said that turning to Icahn for an "additional equity infusion" is one avenue the company may consider.
The move comes at a time when both retailers are struggling against enterprising rivals. Blockbuster has had to revamp its business because of new video distribution models from rivals Netflix and Apple's iTunes. Circuit City, facing a proxy fight against investor Mark Wattles, has been hit by competition from main rival Best Buy, and other chains like Wal-Mart Stores.
Namnews - Tuesday 15th April 2008
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