Blockbuster Offers $1.35 Billion For Skeptical Circuit City - InformationWeek
Government // Mobile & Wireless
06:31 PM

Blockbuster Offers $1.35 Billion For Skeptical Circuit City

Billionaire investor Carl Icahn said he would assist in backing Blockbuster in its quest to pick up the electronics and computer retailer.

Video rental/retailer Blockbuster has made an unsolicited offer of $1.35 billion for Circuit City Stores in a hopeful deal that the two unprofitable companies can combine to produce a profit.

Initial fears that Blockbuster couldn't finance the acquisition were allayed somewhat by the fact that a Blockbuster stockholder, billionaire investor Carl Icahn, said he would assist in backing Blockbuster in its quest to pick up the electronics and computer retailer. Icahn, fresh from a victory in his battle to gain representation on Motorola's board, is also pressing a proxy fight with Circuit City.

Even so, Circuit City has questioned Blockbuster's ability to raise the cash to takeover Circuit City.

Both companies have been under pressure in recent months. Circuit City has been caught in the same downdraft that has pulled down other big-box retailers like CompUSA and Best Buy, while Blockbuster has been hit with stiff competition from Netflix and looming competition for video streaming from Apple's iTunes service.

Last year, Circuit City gambled that layoffs of its top sales and support staff would translate to an improved bottom profit line, but the move failed to boost profits.

Blockbuster revealed that it had made a $6- to $8-a-share offer in February to acquire Circuit City. After claiming that Circuit City declined to open its books, Blockbuster went public with its offer, Blockbuster noted.

In its letter, Blockbuster said a merger of the two companies would be beneficial to both. "The combination of Blockbuster and Circuit City will result in an $18 billion retail enterprise uniquely positioned for the convergence of media content and electronic devices. We would seek to differentiate products in both Blockbuster and Circuit City stores by offering exclusive content and content-enabled devices," Blockbuster wrote.

Circuit City answered that it has doubts about Blockbuster's ability to finance an acquisition properly, stating: "Blockbuster has been unable to satisfy Circuit City and its advisors that Blockbuster's proposal could be financed."

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