Blockbuster Makes Offer for Circuit City

DALLAS, April 14: The
movie rental giant Blockbuster has offered up to $1.3 billion to buy the
electronics chain store Circuit City.

The $6-per-share offer was
made in a letter sent to Circuit City’s chairman and CEO, Philip Schoonover, on
February 17 on behalf of the Blockbuster Board of Directors, which fully
supports the offer.

Blockbuster maintains that
Circuit City has failed to “provide due diligence necessary” to allow the
movie-rental firm to make a definitive proposal. The company maintains that a
combination of Blockbuster and Circuit City would result in an $18-billion
global retail enterprise.

Blockbuster’s chairman and
CEO, Jim Keyes, said, "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. We believe the combination will
result in a compelling consumer proposition that will drive significant revenue
and margin enhancements as well as cost synergies."

The letter to Circuit City
management states: “Our vision for the ‘new’ Blockbuster is to be the most
convenient source for media entertainment.” It continues, “We would seek to
differentiate products in both Blockbuster and Circuit City stores by offering
exclusive content and content-enabled devices. Both companies would benefit
from complementary products, marketing, management strengths, technology and
distribution and the resulting synergies would significantly improve
consolidated financial performance. Overall, I strongly believe that a
combination of Blockbuster and Circuit City would deliver significant value to
our respective shareholders, enhance the overall customer experience, and
energize our employees.”

In a response today,
Circuit City said it would “continue to carefully consider and evaluate
Blockbuster's unsolicited proposal. Circuit City advises shareholders to take
no action at this time with respect to the unsolicited proposal from
Blockbuster.”

The statement also noted
that the Circuit City Board “has previously reviewed a similar private proposal
from Blockbuster. Circuit City, Blockbuster and their respective financial
advisors have been in a process of exchanging information regarding the
proposal, but to date Blockbuster has been unable to satisfy Circuit City and
its advisors that Blockbuster's proposal could be financed.… In addition,
Circuit City and its advisors have a number of other fundamental questions
regarding the structure, sources and uses of funds and consents required with
respect to the proposed transaction.”

The statement concluded:
“While willing to engage in discussions to further understand Blockbuster's
proposal, having shared certain information with Blockbuster, Circuit City is
unwilling to provide Blockbuster with additional detailed due diligence
information and embark on a highly conditional undertaking until these
questions are answered satisfactorily.”

Circuit City Stores is a
leading specialty retailer of consumer electronics and related services. At
February 29, it operated 682 Superstores and 11 other locations in 158 U.S.
media markets. At February 29, the international segment operated through 779
retail stores and dealer outlets in Canada.

—By Mansha Daswani