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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 MrBlastman on 5/12/2008 10:03:46 AM , Rating: 3
I'm scratching my head about this one.

Is this a desperation move by Blockbuster under the weight of Netflix as the coy but humbled Circuit City opens its books?

It looks like it to me. Blockbuster has sold hardware in a very small scale (consoles) in the past, but other than that they are purely a video-rental service. I'm not sure what they are looking to do here. They are having enough troubles on their own. Picking up another troubled company who is caving in to competitive pressure will net what for them in the long run?

I'm not sure but at the very least it could eat up what little leverage Blockbuster has at the moment and fill their executives hands with even more problems.

Of all the mergers and acquisitions I've seen proposed in the last six months, this one is the weirdest yet. I use Netflix and will continue to do so, but I do still visit Blockbusters stores on a rare occasion that I want a movie now that I can't get on Netflix. I'd hate to see them go completely out of business due to this.


By cherrycoke on 5/12/2008 9:27:30 PM , Rating: 2
My friend used to work at Blockbuster and I know this is just hearsay but the rumor is they will convert some stores into some sort of hybrid retail/rental superstore. Something like adding a large rental section in the Circuit City stores. They may also try to offer some more electronics merchandise at the Blockbuster stores. Once again, I have no solid ground to claim this on but just some rumors going through the Blockbuster chains.. I also don't know if this is a good move, it will be interesting to see what happens.


By rudy on 5/13/2008 1:30:17 AM , Rating: 2
Not only that but I can't even think of a successful merger or acquisition in recent times. Sprint/nextel? AMD/ATI? Mercedes/Chrysler? These guys just do not get the amount of trouble it is to pull that off. When in trouble they will keep cutting costs and that will mean screwing either customers or good employees which in turn screws customers. Then it just becomes a black hole nothing can escape.


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