Blockbuster bids for Circuit City
DALLAS
Blockbuster Inc. said Monday it will take an unsolicited $1 billion-plus bid for Circuit City Stores Inc. directly to the consumer electronics chain's shareholders, saying Circuit City has not responded to repeated offers.
The disclosure sent Circuit City shares up more than 50 percent in premarket trading.
Blockbuster, the movie rental chain operator, said it has been in talks with the struggling Circuit City for months regarding an acquisition, and sent a letter Feb. 17 to Circuit City Chairman and Chief Executive Philip Schoonover offering $6 to $8 per share in cash for the company.
Based on Circuit City's 168.4 million shares outstanding at Dec. 31, 2007, the deal values Circuit City at $1.01 billion to $1.35 billion. The offer also represents a 25 percent to 67 percent premium to Circuit City's closing stock price of $4.79 on Feb. 15, the last trading day before Blockbuster made its offer, and at least a 54 percent premium to the stock's closing stock price Friday of $3.90.
A call to Circuit City headquarters in Richmond, Va., was not immediately returned Monday morning.
Circuit City shares climbed $2.10, or 53.9 percent, to $6 in premarket trading Monday.
Circuit City is the nation's second biggest consumer electronics chain after Best Buy Inc., which is based in Minnesota.
Blockbuster said in its February letter it is willing to pursue alternative deal structures which would enable Circuit City shareholders to receive stock. The company would expect to fund the takeover with borrowings and issuance of additional stock through a rights offering to existing shareholders.
Blockbuster says that it requested a response by Feb. 21, but, to date, Circuit City has failed to provide due diligence necessary to allow Blockbuster to make a definitive takeover proposal. Blockbuster is asking for such information as Circuit City's long-term corporate strategic plan and outlook, detailed store-level performance data and current inventory aging schedules, among other items.
"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," Blockbuster Chairman and Chief Executive Jim Keyes said in a statement. "We look forward to engaging in further conversations with Circuit City and reaching an agreement as soon as possible."
Circuit City shares have declined steadily from a year-ago high of $19.12 to reach a low of $3.44 last month. The struggling electronics retailer, the nation's second-largest, did swing a profit of $4.85 million for its fiscal fourth quarter, due to cost-cutting efforts and a $7.3 million tax benefit -- its first quarterly profit since the second quarter of 2007.
It is facing pressure from activist shareholder Wattles Capital Management who seeks improved profitability, and the ousting of Schoonover and the board.
Mark J. Wattles has said turnaround efforts under Schoonover have been "disastrous" and suggested other changes to help "unlock hundreds of millions of value in the near term and billions of value in the long term."
Wattles, founder of the Hollywood Entertainment video-rental chain, wants to kick out all of Circuit City's 12-member board and nominate five directors. The owner of the 32-store Ultimate Electronics chain had also said that Circuit City should hire an investment bank to evaluate any possibility for a takeover offer.
Circuit City lost the crown of No. 1 American consumer electronics chain to Best Buy in the 1990s as Best Buy built bigger stores in better locations and achieved greater economies of scale.
The company, which operates more than 680 stores nationwide, has been looking to its smaller concept stores, widespread cost-cutting and Firedog installation business to spark a turnaround despite increasing competition and the faltering economy.
Over the last year, Circuit City has done some restructuring -- cutting retail management positions, eliminating jobs at its corporate offices and laying off 3,400 retail workers and hiring lower-paid replacements.
