Blockbuster bids $1B for Circuit City

DALLAS -- 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.