In an effort to diversify itself from the video rental
business, Blockbuster hopes to put its weight behind the retail of consumer
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
Shares of Circuit
City soared more than 35 percent to a current last trade of $5.25 on news
of Blockbuster’s offer.