Struggling video rental company Blockbuster has disclosed that it made an unsolicited offer to buy struggling technology retailer Circuit City back in February, offering to pay $6 to $8 per share in a transaction worth up to $1.3 billion. According to Blockbuster chief james Keyes, the combined companies could create a retail powerhouse built on personal electronics and digital media, but Circuit City has failed to perform “due diligence” to enable Blockbuster to make a more definitive offer. Circuit City, however, says Blockbuster has been unable to assure Circuit City it could even finance the buy-out.
So what happens now? Blockbuster is taking its proposal directly to Circuit City’s investors, hoping to acquire enough support to take over the company.
According to Blockbuster, it has been talking with Circuit City executives for months regarding an acquisition, and put the idea in writing on February 17, asking to take a look at Circuit City’s financial records to make a more definitive offer and requesting a response by February 21. According to Blockbuster, Circuit City has failed to respond or let it looks at its books. Circuit City says it has disclosed “certain information” to Blockbuster, but is unwilling to offer more information until Blockbuster explains how it plans to finance a deal. Blockbuster has only said it would fund the takeover with loads and by issuing additional stock to current shareholders.
Industry watchers are questioning the wisdom of Blockbuster’s offer: the company has only recently been able to increase the size of its core video rental business in the face of tough competition from digital downloads and rent-by-mail services like Netflix. Circuit City, which used to be the top U.S. electronics retailer until losing the crown to Best Buy in the 1990s, managed to turn a small profit last quarter after aggressive cost-cutting, but has seen its stock price plummet over the last year and is facing a possible revolt from activist shareholder Wattles Capital Management which is looking to oust CEO Philip Schoonover (along with the company’s board) and institute its own plans to increase profitability.
