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Blockbuster tries to acquire Circuit City

by on15 April 2008


A surprise move that is just now coming to light

News from Dallas today indicates that video store retailer Blockbuster has made an unsolicited bid to acquire electronics retailer Circuit City. The bid by Blockbuster is valued at over $1.33 billion dollars, which equals somewhere in the neighborhood of about $6 per share in cash.

According to Blockbuster, Circuit City has been slow to respond to the offer or to provide any of the due diligence that would be necessary in order for Blockbuster to make a concrete proposal to acquire the company. Why Blockbuster would want to take over Circuit City is somewhat of a mystery. Circuit City has struggled for retail market share in a brick and mortar electronic arena that is dominated in the U.S. by competitor, BestBuy.

It has been suggested that current Blockbuster CEO, James W. Keyes, who is a 21-year veteran of 7-Eleven Inc. cut his teeth in the retail world and that a merger with Circuit City would afford him the chance to get back to what he knows best, which is the retail market space.

Blockbuster has struggled to adapt to the changing video rental market space and has lost much market share to competitors such as Netflix, as well as video on demand providers which are satellite and cable companies. Blockbuster has taken steps to improve its situation by launching its own mail rental business and acquiring Movielink.

Blockbuster is said to have its own set top broadband movie delivery box in development to leverage its Movielink technology; however, with the ever-changing video rental market space it might be too little too late. Blockbuster is in more trouble by underperforming rental stores with high overhead and high inventory costs and a public that is going less and less to their local Blockbuster for video rentals.

The merger of Blockbuster with Circuit City seems to us to be two ships that are taking on water and each hope that a merger will provide them with one sound ship to sail off in. It just does not seem like a good move for either party involved.

Last modified on 15 April 2008
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