In a move Blockbuster chief executive James Keyes called a “game-changing retail concept” that would “dramatically accelerate” the ailing movie rental chain’s morphing into a 21st Century multi-platform media dispensary, Blockbuster Inc. made a $1.35 billion cash offer in a hostile takeover bid for electonics retailer Circuit City yesterday, a move that was panned by both analysts and Circuit City:
Wall Street analysts puzzled over the rationale of combining two troubled companies with little in common. Circuit City, meanwhile, put out a press release questioning whether Blockbuster could obtain sufficient financing for the deal. The offer, at between US$6 and US$8 a share, is bigger than Blockbuster’s entire stock-market value, which totalled about US$630-million based on Friday’s closing price.
“It makes zero sense,” said Howard Davidowitz, chairman of Davidowitz &Associates Inc., a retail consulting and investment-banking firm in New York. “Circuit City is completely underwater and I don’t see any major synergies from the deal … A deal has to be ‘one-plus-one equals three.’ This is ‘one-plus-one equals one-and-a-half.’ “
It seems the only real winner in this deal might be Blockbuster’s chief antagonist, Netflix:
Blockbuster Inc. succeeds with its hostile takeover bid for Circuit City Stores Inc., it could potentially result in the movie rental company selling its DVD-by-mail business to its online rival, Netflix Inc., an analyst said Tuesday. Jefferies & Co. Inc. analyst Youssef Squali said in a Tuesday client note that the success of Blockbuster’s bid of just over $1 billion for the struggling electronics retailer is “far from certain” but could benefit Netflix in a variety of ways. These include “making Blockbuster less competitive online, and potentially ‘forcing’ Blockbuster to sell its DVD-by-mail business to … Netflix, in an effort to monetize this under-appreciated asset,” he said.