Blockbuster bids for Circuit City in $1 billion-plus deal
NEW YORK -- Shares in the No. 1 video-rental company fell 10% to $2.81 after it disclosed its interest in a deal — assuming it finds no surprises in the books of the No. 2 consumer electronics chain.
A Feb. 17 letter offered at least $6 a share, a 54% premium over Circuit City's closing price on Friday. Circuit City shares soared 27% to $4.97 Monday on the news.
The plan to blend entertainment hardware, software and service "is a game changer," Blockbuster CEO Jim Keyes says. "As a customer, if you have any experience with digital content, trying to load devices or watch movies on a PC, you're probably thinking: There's got to be a better way. We think we have an opportunity to break through the consumer confusion and frustration."
Circuit City declined to comment but said in a statement that it won't open its books to Blockbuster's "highly conditional" offer without more assurance that Blockbuster can raise enough cash.
Blockbuster says it can sell additional stock, borrow and possibly get help from its largest shareholder, activist billionaire Carl Icahn.
Keyes' offer comes as Circuit City's largest investor, Mark Wattles, leads a campaign to replace the board. The company has struggled to eke out a profit in a weak economy and with growing competition from low-price retailers including Wal-Mart.
Blockbuster also is grappling with rivals including Netflix and as consumers increasingly buy discount-price DVDs instead of renting them.
But Keyes says there's a strong rationale for a deal — and he wants it "in relatively short order." He says things are moving fast in home video: For example, Apple's iTunes recently began to rent digitally downloaded videos. "We will be in (consumer electronics) on our own, or with Circuit City," Keyes says. "The combination simply allows us to accelerate" that plan.
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