Blockbuster bbi said Monday that it will take its unsolicited $1 billion-plus bid for Circuit City Stores ccq directly to shareholders, saying the consumer electronics chain has not responded to repeated offers.
The movie rental chain operator said it has been in talks with Circuit City for months regarding an acquisition, and on Feb. 17th sent a letter to Circuit City Chairman and Chief Executive Philip Schoonover offering $6 to $8 a share in cash for the company.
Based on Circuit City's 168.4 million shares outstanding at Dec. 31, 2007, the deal values Circuit City at $1.01 billion to $1.35 billion. The offer also represents a 25% to 67% premium to Circuit City's closing stock price of $4.79 on Feb. 15th, the last trading day before Blockbuster made its offer, and at least a 54% premium to the stock's closing stock price Friday of $3.90.
Blockbuster also said in its February letter it is willing to pursue alternative deal structures that would enable Circuit City shareholders to receive stock. The company would expect to fund the takeover with borrowings and by issuing additional stock through a rights offering to existing shareholders.
Cost savings from store closings, mostly of Blockbuster outlets, could help pay for the deal, Blockbuster CEO Jim Keyes told analysts Monday. He noted that "95% of Circuit City stores are within five miles of a Blockbuster location."
He said the combined company could offer new services. For example, stores might offer opportunities to buy digital devices with pre-loaded movies or set aside areas where shoppers could try products.
"It's not inconceivable to imagine a Blockbuster kiosk in your local Circuit City store, or Circuit City video game terminals residing next to the video game rental section in your neighborhood Blockbuster store," he said.
Blockbuster says it requested a response by Feb. 21, but, to date, Circuit City has failed to provide due diligence necessary to allow Blockbuster to make a definitive takeover proposal. Blockbuster is asking for such information as Circuit City's long-term corporate strategic plan and outlook, detailed store-level performance data and current inventory aging schedules, among other items.
"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 in a statement. "We look forward to engaging in further conversations with Circuit City and reaching an agreement as soon as possible."
Keyes, a former CEO of 7-Eleven, was hired last year with a mandate to turn around the company. Keyes has shifted Blockbuster's emphasis from purely DVD rental markets, encapsulating both traditional and online rentals, to in-store sales of DVDs and other media such as video games.
He said the "new" Blockbuster would be "the most convenient source for media entertainment".
Blockbuster, which has 7,800 stores worldwide and a market capitalization about $80 million below Circuit City's $656.6 million, said it expects a profit of $30 million in the quarter that ended April 6.
Since taking the helm last July, Keyes has touted the long-term potential in the chain's brick-and-mortar stores and has pulled back on the company's aggressive and costly rivalry with Netflix Inc for the online DVD rental market.
The restructuring has already started to help Blockbuster, which posted a narrower-than-expected loss in the fourth quarter and recently said it expects to be profitable in 2008.
In addition to stiff competition from Netflix, Blockbuster has also had to contend with the increased consumer adoption of video-on-demand services and movie downloads.
Blockbuster bought Movielink.com last year and has said it plans to make movie downloading to televisions available.
Circuit City has been in a proxy fight with industry investor Mark Wattles, who has demanded that the company remove CEO Schoonover immediately and nominated five people for election to its board at this year's annual meeting.
Circuit City shares have declined steadily from a year-ago high of $19.12 to reach a low of $3.44 last month. The struggling electronics retailer, the nation's second-largest, did swing a profit for its fiscal fourth quarter, due to cost-cutting efforts, its first since the second quarter of 2007.