Officials from major U.S. movie rental business Blockbuster have confirmed that the company has made a $1 billion hostile takeover bid for retailer Circuit City. Blockbuster’s stated intention is to create a 9,300 store chain that would sell “portable devices” and the media for them.
Larger Circuit City stores would include movie rental stores within them and Blockbuster stores would offer a limited range of relevant electronics products. The more than $1 billion offer is bigger than Blockbuster’s total stock market value, but the move has the backing of board member Carl Icahn, who reports claim could help with financing.
Analysts have been skeptical of the move, with both companies currently undergoing restructuring plans in the face of changing markets. Circuit City was dethroned as the number one electronics chain by Best Buy in the ‘90s and has recently concentrated on smaller concept stores and cost-cutting measures.
Meanwhile, Blockbuster has only recently begun to regain ground lost to cheap DVD retailers, video on demand and by-mail firms such as Netflix. BMO Capital Markets analyst Jeffrey Logsdon has queried the strategic value of a hostile bid for Circuit City, concerned that the fight could distract from Blockbuster’s ongoing recovery.
"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 analyst Michael Pachter
, as quoted by the Associated Press.
Blockbuster first approached Circuit City in December, with a formal offer being made in February offering Circuit City $6 to $8 per share. Circuit City executives refused to open their books to Blockbuster, and are reportedly unconvinced that the company can finance the offer.