Blockbuster offers $1 billion for Circuit City

Video rental giant Blockbuster on Monday announced it has offered to purchase Circuit City Stores for $6 to $8 per share, or about $1 billion to $1.3 billion.

Blockbuster initially made the proposal on February 17, but says Circuit City has not provided the due diligence it needs to make a more definitive offer. On Monday, Blockbuster decided to go public. In a letter to Circuit City CEO Philip Schoonover, Blockbuster CEO Jim Keyes notes that the two companies have been discussing proposed tie-ups since December.

(Credit: Blockbuster)

Blockbuster says the offer is intended to "capitalize on the growing convergence of media content and electronic devices."

"Our proposal offers Circuit City a significant premium to its existing stock price and creates a game-changing retail concept with a sustainable competitive advantage. We believe the combination will result in a compelling consumer proposition that will drive significant revenue and margin enhancements as well as cost synergies," Keyes said in a statement.

Circuit City issued its own statement saying it had received the offer, and was still evaluating its options.

A combination of the two companies would add up to an $18 billion business, according to Blockbuster's calculations. Both companies have struggled in the past year--Circuit City posted a $200 million loss near the end of 2008, and Blockbuster has been fending off Netflix's success in online video rentals, as well as the growing threat of digital movie downloads.

Last week news leaked out that Blockbuster had a set-top box under development that would stream video content directly into homes, which was seen by many as a last-ditch effort to adapt its business.

[michaelhoffman]

Bad Idea

A merger of two weak companies doesn't make for a strong company.

If I was on the Circuit City board I would say NO WAY. Blockbuster is in a dying business. They need a new business. It's obvious why they want to merge. The benefits to Circuit City are less clear. Why would they want to dilute what they have left of their low-margin business?

[dascha1]

Gravitating toward weightlessness

I really liked the photo of the store-front. I will miss it like the
drive-thru's of yesteryear...

[chuck_whealton]

An absolutely bad idea

Circuit City has probably seen better days, but I'll say when I was last there, they had what I consider to be fair deals.

Blockbuster, on the other hand, is overpriced and they keep raising their prices to the point where if you have on-demand, you might as well use it.

If they buyout Circuit City and start raising all of their prices, I don't see Circuit City being around much longer. At that point, you might as well order online.

I sure won't be a customer, if they take that route.