Thursday, April 24,2008 @ 4:30pm
Circuit City questions Blockbuster takeover finances
Last week saw video and game rental chain Blockbuster make a public $1 billion bid for electronics retailer Circuit City. At that time, Blockbuster accused Circuit City of not providing information the suitor requested to make a definitive proposal. Yesterday, investor group Wattles Capital Management, representing Blockbuster, sent a letter outlining the reasons for such disclosure to Blockbuster's board members. Circuit City's same-day response questioned Blockbuster's ability to finance such a deal in light of the rough economy.
Circuit City, working with its financial advisor, Goldman, Sachs & Co, believes the limited information it has are the reasons for its doubts. The retail chain's board members concluded they will require Blockbuster to produce a realistic financing outline before they would release any more information Blockbuster requested.
Blockbuster, on the other hand, is maintaining it needs its answers before it can provide those very same transaction financing questions to Circuit City, among other reasons.
The offer would provide $6 per share and equate to $1 billion, or approximately 54 percent more than Circuit City's current value. The Wattles letter also requested a rapid start of good-faith negotiations, so that it could make a "definitive proposal at the high end of their offer's range." The information it seeks could increase the offer to as much as $8 per share, or about $1.3 billion. Wattles holds a 6.5 percent stake in Circuit City.
Combined, the companies are estimated to be worth approximately $18 billion. Industry analysts believe the move is the first step in the two offering a similar hardware/download enterprise to Apple's successful iPod/iTunes operation. Blockbuster would likely take many of its movie offerings online, and possibly add music to the mix, which users could enjoy on their TVs or other devices bought from the same company.