Company cites market conditions, due diligence
Blockbuster has withdrawn its $1 billion bid for Circuit City 5½ months after it made its original offer.
The vidtailer, which had been eying the troubled consumer electronics retailer as a way to diversify, cited market conditions and due diligence for the pullout.
Blockbuster quietly pledged $6-$8 per share for the chain on Feb. 17, then went public in April when Circuit City failed to respond to Blockbuster’s request for a look at its financials.
The electronics chain finally agreed to open its books to Blockbuster in early May and has steadfastly maintained it was seeking several alternative ways to turn around its fortunes (Daily Variety, May 10).
Circuit City’s last earnings report a few weeks ago no doubt chilled Blockbuster’s ardor. The chain widened its fiscal first-quarter loss to $165 million on lower sales and forecast a $170 million-$185 million loss from continuing operations before taxes in its second fiscal quarter before a gradual recovery in the second half of the fiscal year. The shaky economy surely didn’t help the case for a troubled electronics chain.
Blockbuster topper Jim Keyes said the vidtailer simply determined that purchasing Circuit City is not in its best interests but stressed the company’s ongoing commitment to diversifying its wares.
“We continue to believe in the strategic merits of a consumer retail proposition that would bring media content and electronic devices together under one brand,” Keyes said.
Now, however, Blockbuster will try to realize that goal in its existing stores. The chain has made several moves to diversify since Keyes took the tiller, buying digital delivery platform Movielink.com for a song and pursuing a pay TV venture with Paramount.
Circuit City shrugged off Blockbuster’s defection and reiterated its commitment to finding strategic alternatives.
“Our exploration of strategic alternatives is intended to serve the interests of our shareholders by considering every possible alternative to enhance shareholder value,” said Philip J. Schoonover, Circuit City prexy, chairman and CEO. “The board’s review was not dependent on Blockbuster’s participation.”
He said there is no deadline for the completion of this review.
The deal initially had a champion in Carl Icahn, a director at Blockbuster, and Circuit City shareholder Mark Wattles, who once ran the Hollywood Video chain. Wattles has stressed, however, that the chain has several potential suitors.
Wall Street, on the other hand, was always tepid on the pact. Blockbuster shares rose in after-hours trading on the news, issued at market close. (Its shares closed the day at $2.51.) Circuit City shares, already down 34¢ for the day at $2.55, tumbled further in after-hours trading.