Filed under: Deals, Blockbuster Inc ‘A’ (BBI), Circuit City Stores (CC)
As Doug McIntyre reported earlier, Blockbuster (NYSE: BBI) has extended a preliminary offer to acquire Circuit City (NYSE: CC) “with an all cash offer in the range of $6.00 to $8.00 per share, subject to due diligence.”
In a press release, Blockbuster said that Circuit City has not yet provided it with information necessary to conduct due diligence, and that it “believes the shareholders of Circuit City should have the opportunity to participate in determining the destiny of the company.”
The pre-market trading tells the story on this one. Share of Circuit City are up more than 55% to $6.14, at the lowest end of the range Blockbuster’s press release contemplates. This indicates investor skepticism about the prospects of a deal getting done. In a press release responding to the offer, Circuit City noted that “to date Blockbuster has been unable to satisfy Circuit City and its advisors that Blockbuster’s proposal could be financed.” Meanwhile shares of Blockbuster are down about 11%, a sign that investors aren’t too excited about the prospect of a Blockbuster-Circuit City combination.
It’s easy to understand why. This deal would be the absolute epitome of “two drunken sailors trying to hold each other up.” Both of these companies have experienced precipitous declines in current years, reporting losses as industry changes and more nimble competitors take their market share.
This merger makes about as much sense as a typewriter maker and a VHS manufacturer teaming up to make typewriters that can play video tapes.
Very few people want to shop at Circuit City or Blockbuster, and combining them won’t make them any more attractive.
Blockbuster added that “The transaction would allow both companies to benefit from the revenue growth generated by their complementary products, while the resulting synergies would substantially improve consolidated financial performance, thereby increasing shareholder value.”
But a look at the 5-year chart for Blockbuster should give investors tiny faith in the company’s knowledge of what generates shareholder value.
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