Hostile bid for Circuit City
DALLAS – Blockbuster Inc., which has been busy trying to fix its own movie-rental business, is making a hostile takeover bid of just over $1 billion for Circuit City Stores Inc. with dreams of creating a huge chain that would sell electronic gadgets and rent movies and games.
The offer is larger than Blockbuster’s entire stock market value, but Chief Executive James Keyes said he was confident his company can swing the deal and that the move has the support of one of his board members, financier Carl Icahn, who could help with financing.
Icahn did not return calls for comment.
Keyes said combining the companies would create a 9,300-store chain that could sell portable devices and entertainment for them, much like Apple Inc.’s stores. The larger Circuit City stores would have movie-rental stores inside, and Blockbuster locations would offer a limited selection of electronics.
News of Blockbuster’s bid for Circuit City, valued at up to $1.35 billion, sent the struggling retailer’s shares up 27 percent on Monday. Blockbuster shares fell.
Circuit City, the nation’s second biggest consumer electronics chain, said it doubted Blockbuster could finance the deal and has resisted opening its books.
Analysts said Blockbuster, which is undergoing its own turnaround effort, could be getting more than it can handle in Circuit City. The chain has been fighting a losing battle against rival Best Buy Inc.
“Blockbuster is not thinking through how difficult the big-ticket consumer-electronics business is. It’s pretty audacious … to the point of potentially reckless,” said Michael Pachter, an analyst with Wedbush Morgan Securities.
“Look what happened to CompUSA and Good Guys and Ultimate Electronics,” he said, ticking off the names of chains that failed. He said Circuit City could continue losing market share to Best Buy.
BMO Capital Markets downgraded Blockbuster stock. Analyst Jeffrey Logsdon said he couldn’t understand the strategic value of a hostile bid for Circuit City. He warned the fight could distract the movie-rental company from its own recovery.
Blockbuster has struggled for several years to compete with cheap DVDs from retailers such as Wal-Mart Stores Inc., video on demand from cable and satellite TV operators, and the by-mail rental service of Netflix Inc.
Since joining Blockbuster last summer, Keyes has dumped online customers who were costing more money than they brought in, and bought Movielink, a digital movie-downloading service operated by major Hollywood studios.
Keyes said the moves were working. He said Monday that the company would report first-quarter net income of $30 million, a dramatic reversal of its loss of $49 million a year ago.