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Circuit City sees the writing on the wall, allows review by Blockbuster

Nearly a month ago, Blockbuster made it public that it offered to acquire Circuit City for $6 to $8 per share, resulting in a potential buy of up to $1.35 billion.

Blockbuster made the offer known to the outside after it felt that Circuit City had not provided due diligence necessary to allow for a definitive proposal, perhaps as a sign of the retailer’s resistance to a possible acquisition.

Some questioned Blockbuster’s ability to finance such a deal, but the rental giant’s largest investor and billionaire Carl Icahn agreed to backup such a deal in a public letter to Blockbuster chairman and CEO Jim Keyes, squashing monetary concerns.

Keyes wrote in a letter to Circuit City chief Philip J. Schoonover regarding Icahn’s support, paving the way for the acquisition. “Since our announcement, your shareholders have indicated strongly to us their desire to pursue such a transaction,” read the letter from Keyes. “We have now satisfied your remaining condition to our being provided access to due diligence materials and trust that it will be made available to us promptly.”

With the money in place, Circuit City is finally loosening its grip and opening it books for Blockbuster to review. Goldman Sachs & Co. was hired to explore strategic alternatives, partly to ease investor concerns and constant motions to allow acquisition.

“The board is taking its fiduciary responsibility to its shareholders seriously,” Circuit City spokesman Bill Cimino said in an AP story. “These actions today, the board felt, were in the shareholders’ best interest.”

Blockbuster commented in a statement, “While it is our hope that the due diligence process will reinforce both the strategic and financial rationale behind the deal, we are committed to only doing a transaction that provides substantial benefits for our shareholders.”

Shares of Circuit City jumped 28 cents to $5.07 – still below the buyout offer of $6 to $8 a share – while Blockbuster stock dropped 2 cents to $2.66.

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RE: Weak company purchasing a weaker company...
By FITCamaro on 5/12/2008 9:04:47 AM , Rating: 2
Yeah neither company to me has very long term viability. Both are waning in the marketplace. Circuit City doesn't have bad products. They have higher end TVs and sound systems than Best Buy. The problem is their warranties are horridly overpriced compared to Best Buys. When I bought my HDTV, both companies carried it but Circuit City wanted $100 more for a shorter warranty.

Blockbuster could get my business if their movie by mail program also included video games. But then Netflix could keep me from Blockbuster just as easily by offering it as well.

RE: Weak company purchasing a weaker company...
By glennpratt on 5/12/2008 10:28:01 AM , Rating: 3
Blockbuster could get my business if their movie by mail program also included video games

It does.

You can rent one game or movie in-store by returning your last mailed movie to a store (instead of dropping it in your own mailbox). So you can pickup a game at the store, and they will mail in your disc so you'll get the next one in your queue probably before you return the in-store rental.

My wife and I do this on the lowest plan and we get by easily without cable (they have all the show we want to watch in a much more convenient format).

By FITCamaro on 5/12/2008 12:27:29 PM , Rating: 2
I meant receiving games by mail.

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