blockbuster circuit city

Do you remember back in the late 80’s and early 90’s when Circuit City was the place to go for consumer electronics? Do you also remember the days when a parking spot was hard to come by in the Blockbuster Video parking lot on a Friday night? At one point both companies, Circuit City and Blockbuster Video were at the top of their game and were doing very well for themselves. Over the last several years we have seen them slowly drop in popularity and in profitability, and both are seen as companies in a bit of trouble. That’s why when we read that Blockbuster has made an offer to acquire Circuit City, we were surprised to say the least.

In a letter dated February 17th, but just made public today, Jim Keyes, Chairman and CEO of Blockbuster writes to Philip Schoonover, CEO of Circuit City to make an offer for the company. In the letter, Keyes asked that a response be made by February 21st, however no response was made. Now they’re taking a Microsoft-ish approach to this saying that they are taking an unsolicited $1 billion dollar plus bid for Circuit City directly to the shareholders.

Blockbuster’s CEO  gives us a small glimpse at what they intend to do should they acquire Circuit City by saying that a deal would create a chain that could sell portable devices and entertainment for them, much like Apple Inc’s stores. In a letter to the company, Keyes writes, “Our vision for the new Blockbuster is to be the most convenient source for media entertainment.”

So now comes the issue of price. Blockbuster is offering $6 to $8 per share in cash to Circuit City which is valued at $1.01 to $1.35 billion. Friday’s closing price for Circuit City was $3.90 and this morning they were as low as $2.33, so $6-8 per share doesn’t sound all too bad. Of course once word came out that Blockbuster was after Circuit City, their shares jumped to $6.25 and Blockbuster shares dropped. Keyes said the offer is a “significant premium” to Circuit City’s share price and said the combination of the chains would create “a game-changing retail concept with a sustainable competitive advantage.”

Do you think we’ll ever see a day in the future when Circuit City is able to regain the title as #1 American Consumer Electronics Chain, a title they lost to Best Buy in the 1990’s?

Source: Engadget