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Blockbuster makes bid to buy Circuit City for up to $1.35 billion

In an effort to diversify itself from the video rental business, Blockbuster hopes to put its weight behind the retail of consumer electronics.

Blockbuster Inc. today publically announced that it has offered to acquire Circuit City for $6 to $8 per share, resulting in a potential buy of up to $1.35 billion.

Although such acquisition deals aren’t normally made quite so public, Blockbuster said in an investors release that Circuit City management has “failed to provide due diligence necessary to allow Blockbuster to make a definitive proposal” and that “shareholders of Circuit City should have the opportunity to participate in determining the destiny of the company.”

The rental juggernaut attached a letter written by Blockbuster head Jim Keyes, addressed to Circuit City chairman and CEO Philip Schoonover and sent on February 17.

“Our vision for the "new" Blockbuster is to be the most convenient source for media entertainment. We have undertaken a series of strategic initiatives including enhancement of our core rental business; a transition from solely rental to a concentration on consumer retail; and development of the fast-growing digital download market,” Keyes wrote, adding that the combination of Blockbuster and Circuit City would result in an $18 billion retail enterprise.

Keyes continued to describe how the two seemingly different businesses would complement one another. “We would seek to differentiate products in both Blockbuster and Circuit City stores by offering exclusive content and content-enabled devices. Both companies would benefit from complementary products, marketing, management strengths, technology and distribution and the resulting synergies would significantly improve consolidated financial performance,” he wrote.

In his letter, Keyes requested from Schoonover a response no later than February 21. With that date past, Blockbuster is now turning to Circuit City’s shareholders to determine the future fate of the second largest electronics retailer in the U.S.

“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,” Keyes said on Monday. “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 has fallen on hard times as of late. In 2007, Circuit City had cut hundreds to thousands of jobs in an effort to trim the fat. Dropping its workforce wasn’t enough, however, as the retailer also closed nearly 70 stores in North America.

Major Circuit City investor Mark Wattles, who holds 6.5 percent of the company, said earlier this month that he would like to see new management at the helm. Wattles also suggested that Circuit City might put itself on the market for a potential sale.

Shares of Circuit City soared more than 35 percent to a current last trade of $5.25 on news of Blockbuster’s offer.

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one dying company attempts purchase of another
By Screwballl on 4/14/2008 11:35:45 AM , Rating: 1
Blockbuster has been closing stores and slowly dying off. With the advent of PPV movies on digital cable and satellite, IPTV and Netflix, Blockbuster has been (unsuccessfully) trying to reinvent itself. They have to be the WORST movie rental place I know of. They continuously raise their prices instore, they raise prices for the "mailbox" rentals, they screw the customer with crazy late fees (used to be $5 per day late, even on 7 day rentals) or late fee scams (no late fee but after 7 days of you having a movie past its due date, they charge you full price for a "commercial" DVD which is usually $30-100). So as a last ditch effort to stay afloat, they try to acquire CC...
Personally I hope BestBuy, CC and BlockBuster die horrible deaths, the consumer market will be that much better off and the true customer service based local stores will be able to serve the customers instead of the corporate wallets.

RE: one dying company attempts purchase of another
By Murst on 4/14/2008 12:20:13 PM , Rating: 5
Personally I hope BestBuy, CC and BlockBuster die horrible deaths, the consumer market will be that much better off and the true customer service based local stores will be able to serve the customers instead of the corporate wallets.


When BB & CC die off, we'll have Walmart, Costco, Sears, and HHGreg...

RE: one dying company attempts purchase of another
By HrilL on 4/15/2008 1:18:49 AM , Rating: 1
You seem to have forgot the best Electronics store of them all Frys.

By Samus on 4/15/2008 4:34:04 AM , Rating: 2
You are aware Fry's was rated worst in customer satisfaction among ALL e-tailer for the three consecutive years up to 2007, right?

Fry's owned by Persians, Blockbuster owned by Mormons, maybe they should buy and go frak eachother.

By AlphaVirus on 4/15/2008 11:36:54 AM , Rating: 2
You must be new to the electronics world. Frys is the WalMart for electronics, bad bad bad, and you should stay away if you want to keep your soul.

RE: one dying company attempts purchase of another
By HrilL on 4/15/2008 1:02:46 PM , Rating: 2
first off they have better prices then all those other stores for the things I would buy from them like cat 6, cat 5e cables, patch pannels, connectors and so forth that are needed asap those other stores don't even have a lot of those parts. For example a 20 ft cat6 cable at those other stores will be around $30 at fry's its less then half that. For computer hardware or other electronics I've never used any of those stores. Newegg is always cheaper and their customer service is top nouch.

By afkrotch on 4/15/2008 2:24:08 PM , Rating: 1
Go to Home Depot bish. Much better prices for those types of items. $30 for 3000 ft of cable, $10 for 100 connectors, and $25 for a crimp tool. Or go wall jacks, punch down tools, and patch cable.

Shoot, those other stores don't even carry that type of stuff.

By Hotdogah on 4/14/2008 1:05:56 PM , Rating: 2
Maybe they could get AOL somehow into this. ;)

By teckytech9 on 4/14/2008 1:36:09 PM , Rating: 2
I don't see the synergies with a Blockbuster (BBI) offering to buy Circuit City (CC). It appears that the video rental revenues have been steadily declining for Blockbuster due to lower prices from their competitors and kiosk stations that offer $1 rentals.

Also it appears that BBI's announcement this morning has diluted their share price which means that they would have to incur more debt to make the purchase.

By afkrotch on 4/15/2008 2:26:23 PM , Rating: 2
ZOMG! He used the word "synergies". Stone him!!!

By isorfir on 4/14/2008 11:18:07 AM , Rating: 4
Instead of setting a bad example to their customers, maybe Blockbuster should rent Circuit City instead of buy them?

RE: Hmm
By xsilver on 4/14/2008 11:47:58 AM , Rating: 2

but what will happen is they'll rent them for 3 years but not want to pay their shareholders profits on time.
They'll end up getting fined 500mil by the SEC and that will be the end of them ;)

RE: Hmm
By Owls on 4/14/2008 12:37:29 PM , Rating: 4
Blockbuster has 7 days to return Circuit City or pay $1.35 Billion.

bad joke, I know, just be happy I didn't include something about rewinding.

RE: Hmm
By HighWing on 4/14/2008 12:39:20 PM , Rating: 3
I wonder would Circut City be able to charge them a late fee if it's not returned on time?.... oh wait I forgot they don't have "late fees" instead they charge you Restocking Fee for returning it late!!!!

RE: Hmm
By Spivonious on 4/14/2008 7:39:56 PM , Rating: 3
If you're late by more than two weeks, yes, because at that point you've purchased the movie. How can you charge late fees on a purchase?

By SlingXShot on 4/14/2008 10:48:03 AM , Rating: 2
But still... may be renting movies in CC? :-D

RE: Ouch....
By Hiawa23 on 4/14/2008 10:59:08 AM , Rating: 2
Wow, I knew Blockbuster was huge, but didn't know they were that huge. I guess video rentals are doing well. Personally, since joining Netflix about 4 years ago, I have not gone into a Blockbuster since. If they can pull this off hats off to em. Best Buy is always my first choice for shopping, but I like Circuit City also.

RE: Ouch....
By Regs on 4/14/2008 11:10:37 AM , Rating: 2
Blockbuster has some wealthy share holders with a lot of disposible income don't you worry. Plus CC's cash and inventory values would more than finance the buy-out.

CC's management is abysmal. From the floor on up. If you could only look at the lack of incentives or motivational plans CC has for managers, you can understand why. You get what you pay for.

A case of bad timing
By crystal clear on 4/15/2008 7:49:45 AM , Rating: 2
In an effort to diversify itself from the video rental business, Blockbuster hopes to put its weight behind the retail of consumer electronics.

A classic case of bad timing thats so critical when attempting to diversify.

In a really bad economic climate existing in the USA & getting worse by the day, this is not the right time to diversify.

Now the time for cost cutting,debt reduction,efficiency programs, increase sales revenue reorganization & restructoring.

The have to learn from the mistakes of AMD when it raised billions to buy up ATI.

A horrrific & suicidal mistakes that will cause a meltdown of AMD & drive it into bankcruptsy.

Earning itself (AMD) the titles like "All MADE of Debts" to "All Made of Disasters" in the financial world.

Blockbuster is surely aware of the economic climate currently in the USA.

The credit crisis- which makes financing this deal nearly impossible or suicidal or extremely expensive & difficult.

The economic slowdown which is rapidly turning into a full fledged recession.

The record job losses posted every month for the last 3 months by the labour dept report-163000 so far

The record high oil prices drastical shooting up fuel & energy cost thats passed on to the conumers ultimately.

The record high food prices.

The drastic fall in consumer spending month after month.

& more bad economic news to follow.

They should be asking a simple question-

How & from where to raise the finance to pay for this deal & at what cost.

The credit market are very tight & investor confidence very low.

Can they pay back the debts/borrowings with a serious drop in consumer spending currently hitting all the retailers very hard,resulting in low revenues.

Employment holds the key to the U.S. economy because jobs mean paychecks, paychecks mean consumer spending, and spending accounts for about 70 percent of the economy.

How Blockbuster's existing debt would be refinanced.


Whether it could afford to buy Circuit City

Suicidal- A case of bad timing.


Back to the basics....

Restructoring & Reorganizatio & cut costs.

Dont take on additional debt.

Dont buy Circuit City

RE: A case of bad timing
By crystal clear on 4/15/2008 8:22:30 AM , Rating: 2
Weak retail sales may spur more warnings

Investors are now bracing for more profit warnings on Thursday, when major U.S. retailers, including Wal-Mart Stores Inc (WMT.N: Quote, Profile, Research), Gap Inc (GPS.N: Quote, Profile, Research) and Kohl's Corp (KSS.N: Quote, Profile, Research), report their final sales figures for March.

U.S shoppers have cut spending amid high gasoline prices, soaring food costs, dropping home values, a credit market crunch and a weakening job market.

Disaster waiting to happen
By viperpa on 4/14/2008 3:35:23 PM , Rating: 3
We all remember what happened when AOL bought Time Warner? Blockbuster buying Circuit City is also a disaster waiting to happen. On top of that we have corporate execs at each company who don't even know what the hell they are doing.

Both companies are tanking on there own and they should take the long walk off the short pier.

By Screwballl on 4/14/2008 11:58:27 AM , Rating: 2

publicly in Cali? /laugh/

Someone's spell check is on the fritz.

This is strange.
By Sulik2 on 4/14/2008 4:26:14 PM , Rating: 2
Jim Keyes has actually been doing pretty well as Blockbuster's CEO. They have had same store sales increases at the majority stores since he took over, but this is a crazy idea.

There is no room in Blockbuster stores to put more electronics, so the only thing I can think of is he plans to move Blockbuster into CC. Buy your TV, Blu-Ray/DVD player, then spend $5 bucks to rent a movie when you obviously have the money to buy some. Just a terrible, terrible idea.

I smell
By Elementalism on 4/14/2008 10:06:31 PM , Rating: 2
A CEO looking for a quickfix to raise the price of his companies stock and cash out. Leaving two dying companies spiraling down the toilet bowl of bankruptcy.

Circuit City
By SecTech767 on 4/15/2008 10:00:24 AM , Rating: 2
I work for Circuit City and would like to say a little. The way customer service is determined works from the top down. CC acutually has a very good system for customer service and enforces it accordingly. Alot of fault can be put into the local managers. Not much effort is put into the hiring process. Employers do not turn down many applicants for fear of legal action which is very common for corporations. This directly results in the hiring of "unqualified" employees.

I hear all the time about how CC has much better service than Best Buy and vice versa. It all comes down to a personal opinion.

As of Blockbuster buying out CC, it sounds like a good move on blockbusters end. It is more than likely to happen because CC shareholders can sell out for almost double on a slowly falling company. CC does have a decently sized reserve and has plans for a completly new method of retail unlike other stores. CC can either sell out now and leave it to BB or they can deny it and try to renovate the way they operate. If they fail, they will have missed out in letting BB take the fall.

All in all, the overall effect of the buy out might become dramatic, or not happen at all. If I hear anything, ill let you guys know.

From the Floor down...
By TimberJon on 4/14/08, Rating: -1
RE: From the Floor down...
By themadmilkman on 4/14/2008 1:18:02 PM , Rating: 5
I've read your post 3 times, and I'm still lost.

Could you please tell me wtf you were actually trying to say?

"Spreading the rumors, it's very easy because the people who write about Apple want that story, and you can claim its credible because you spoke to someone at Apple." -- Investment guru Jim Cramer

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