Blockbuster CEO Explains Crazy Circuit City Bid: Desperate Cry For Attention

We were never able to wrap our heads around Blockbuster's odd bid for Circuit City; neither were investors. But now that Blockbuster (BBI) has finally walked away from it, CEO Jim Keyes comes clean. He was never that interested in it, anyway. It was just more effective than paying for ads or rentin a booth at next year's CES. WSJ:

Blockbuster is now a stronger contender in electronics retailing, Mr. Keyes argued, because manufacturers started courting the company after the bid.

"We were really not on the radar screen of any major consumer-electronics manufacturers previously," Mr. Keyes told Dow Jones Newswires. "They did not see Blockbuster as a potential retailer of these devices. With the announcement of the Circuit City transaction publicly, it caught the attention of all the [consumer-electronics] providers."

Of course, that result must only make investors wonder why Blockbuster offered a hefty 58% premium for Circuit City back in April, with no knowledge of its target's finances, and pursued its bid so aggressively that it enlisted corporate activist Carl Icahn.

We think investors will also wonder just how much the Circuit City bid cost them in legal and banking fees. We imagine that they'll find out soon, when the company files it's next 10Q. Hope they got their money's worth.

Source: Silicon Alley Insider

Blockbuster withdraws plan to acquire Circuit City

Blockbuster withdraws proposal to acquire Circuit City because of market conditions

NEW YORK (Associated Press) - Blockbuster Inc. said Tuesday it is withdrawing its proposal to buy Circuit City Stores Inc., the big-box electronics retailer whose sales have tumbled this year.

Chief Executive James Keyes said in a written statement that the proposed deal, at a price of more than $1 billion, didn't make sense because of market conditions. Blockbuster shares jumped nearly 12 percent on the news, while Circuit City shares continued their fall.

Blockbuster, the nation's largest movie-rental chain, will still try to merge content such as movies and games with the sale of electronic devices under one roof _ but it will be at Blockbuster's own stores, Keyes said.

Circuit City Chief Executive Philip J. Schoonover said his board was still exploring strategies to help shareholders, which he said didn't require Blockbuster's presence.

The retailer's stock has dropped below $3 from its peak near $31 in May 2006, and the shares have lost about half their value since a one-day rally spurred by Blockbuster's bid. Blockbuster shares have fallen 20 percent since the bid was announced in April.

"Clearly Blockbuster shareholders didn't favor this deal," said Michael Pachter, an analyst with Wedbush Morgan Securities. "The company has done everything right since Jim Keyes took over, except making this bid. ... Circuit City's business is just plain in trouble."

Dallas-based Blockbuster had offered at least $1 billion for Circuit City and planned to create a 9,300-store chain.

Blockbuster went public with its offer after its initial overtures were ignored by Circuit City's board. Eventually, the Richmond, Va.-based company agreed to open its books to Blockbuster.

But the deal _ a marriage of two companies that each lost money last year _ was viewed with skepticism by many investors. Pressure on Blockbuster to walk away grew in June, when Circuit City reported that its loss tripled and same-store sales plunged 11 percent in the quarter that ended May 31.

It was a difficult period for other retailers too, but Circuit City's performance was worse than rival Best Buy Co., which saw its profit decline in the same period by 7 percent.

As of May 31, Circuit City operated nearly 700 U.S. stores and had 775 stores and dealer outlets in Canada. In its last fiscal year, it lost $320 million on sales of $11.7 billion.

Blockbuster has more than 7,700 stores worldwide. It lost $85 million last year on revenue of $5.54 billion.

The rental chain faces tough competition from the mail-delivery service of Netflix Inc. and cheap DVDs for sale at discounters such as Wal-Mart Stores Inc. Since Keyes was hired last year, Blockbuster has moved to cut costs and limit losses in its online service, Total Access.

Before news of Blockbuster's decision, shares in the movie-rental chain rose a penny to close at $2.51. In after-hours trading, they rose 29 cents, or 11.6 percent, to $2.80.

Source: CNNMoney.com

Wall Street to Blockbuster: Lower bid for Circuit City or walk away

Wall Street is sending messages to Blockbuster about its bid for Circuit City.

Don't do it. But if you do, pay less.

Blockbuster Inc.'s stock declined 10 percent Friday, closing at its 52-week low of $2.52 a share.
Circuit City Inc.'s deteriorating performance and Blockbuster's shrinking stock price make Blockbuster's $6 a share bid for the consumer electronics chain ill-advised.

Richmond, Va.-based Circuit City on Thursday reported a first-quarter loss of $1 a share, a 12.2 percent decline in same-store sales and deteriorating cash position.

A leading Blockbuster analyst on Friday said he gives the $1 billion proposal a 5 percent chance of happening.

Arvind Bhatia, of Sterne, Agee & Leach in Dallas, said he bets Blockbuster will either lower its bid to $4-to-$5 a share or walk away.

Blockbuster will update its intentions for Circuit City soon, within two weeks, he said.

Blockbuster has been reviewing Circuit City's books, and the Dallas-based company continues to say it will pursue Circuit City only if the deal makes sense strategically and financially.

A lower bid could make shareholders more receptive to Blockbuster management's synergy argument. The movie rental chain is trying to become a home entertainment store, and Circuit City could benefit from Blockbuster's higher store traffic, says Blockbuster chief executive Jim Keyes.

Blockbuster investors will need to see more than synergy, Mr. Bhatia said, specifically, how Circuit's core business could be turned around. Blockbuster could walk away, but he sees a merger at a lower price as the more likely outcome.

Sterne, Agee & Leach has a buy rating on Blockbuster shares with a price target of $5.75 a share, based on future earnings estimates.

Source: The Dallas Morning News

Circuit City Puts Itself Up for Sale, Hires Goldman

May 9 (Bloomberg) -- Circuit City Stores Inc., pressured by investor Mark Wattles to raise its stock price, put itself up for sale and opened its books to Blockbuster Inc. and billionaire Carl Icahn to prepare for a possible offer.

The second-largest U.S. electronics retailer rose as much as 13 percent in New York trading.

Blockbuster made an unsolicited bid of $6 to $8 a share for Circuit City in February, provided it could study the retailer's books. That would value Circuit City at $1.35 billion, more than 50 percent higher than its market capitalization now. Icahn said today he'd purchase the company should Blockbuster fail to get financing. Circuit City hired Goldman, Sachs & Co. to review its options.

"This is a significant development and makes it more likely that a deal will happen,'' Richard Hastings, an analyst with the Federation of Credit and Financial Professionals in South Plainfield, New Jersey, said in an interview.

Circuit City, which lost money in the past two years as Best Buy Co. and Wal-Mart Stores Inc. lured customers away, has opened smaller stores and fired higher-paid employees to lower costs. Wattles, who owns 6.5 percent of the retailer, had sought to replace Chief Executive Officer Phil Schoonover and gain five seats on the board, arguing that management's strategy isn't working.

Wattles and Circuit City have agreed to include three of his nominees as part of a slate of directors to be elected at this year's annual meeting, the retailer said in a separate statement.

Circuit City, based in Richmond, Virginia, climbed 41 cents, or 8.6 percent, to $5.20 at 12:45 p.m. in New York Stock Exchange composite trading. Blockbuster fell 4 cents to $2.64.

Blockbuster `Pleased'

Blockbuster said in a separate statement that it was "pleased'' with the decision. The world's largest movie-rental chain, which also lost money last year, has said it would combine electronics with movies and eliminate overlapping store locations.

Circuit City is trading 13 percent below the low end of the preliminary bid. It once rose as high as $31.54 and has lost 84 percent of its market value since May 2006.

"Consumer-electronics is littered with the corpses of investors who thought they could make it in this competitive industry,'' said Richard Weinhart, an analyst with BMO Capital Markets in an interview. "Combining two struggling retailers isn't likely to produce winning results.''

Icahn, who owns 16 percent of Blockbuster, first began purchasing its shares in 2004. He began a proxy fight in 2005 that led to the appointment of himself and two of his nominees to the chain's board. Blockbuster has dropped 72 percent since the end of 2004.

Icahn's Role

"I don't know what Icahn's doing here,'' said John Orrico, a manager of the $200 million Arbitrage Fund which invests in takeover targets. "Throwing good money after bad is the way we view this strategy. We don't see this transaction being a smart move for either party.''

Circuit City sought a letter from Icahn guaranteeing that he would acquire the electronics retailer should a review of its financial information be deemed satisfactory and Blockbuster be unable to complete its offer, Icahn said today in a regulatory filing.

If a public statement to that effect weren't made, Circuit City wouldn't allow Blockbuster to review its books, Icahn said.

Wattles, 47, founded the Hollywood Video chain and sold it in 2005. He bought retailer Ultimate Electronics Inc. at a bankruptcy auction that year.

Source: Bloomberg.com

Circuit City Gets Pressure From Big Investor for a Deal

Circuit City Stores Inc.'s largest shareholder called on the consumer-electronics retailer to put itself up for sale, tacitly endorsed an unsolicited bid by Blockbuster Inc. and raised the prospect of financing the acquisition.

The move by HBK Investments LP increases the pressure on Circuit City's board to begin negotiations with Blockbuster. The Dallas hedge fund holds 15.4 million shares, or about 9.1%, of Circuit City, of Richmond, Va., and is the third-largest Blockbuster shareholder, with an 8.5% stake. HBK Managing Director David Haley declined to comment via a spokesman.

"We are very optimistic about the future prospects of a combined company," HBK wrote in a letter to Circuit City Chairman and Chief Executive Philip J. Schoonover. The investment firm said that a majority of Circuit shareholders would favor the company's sale "at a meaningful premium." It also raised the prospect of filing a lawsuit against the board for refusing to provide information to Blockbuster.

A Circuit City spokesman said directors plan to review HBK's requests "and will respond when appropriate." A Blockbuster spokeswoman said, "We agree with the overall assessment in the letter... ."

HBK called on Circuit City's board to "immediately" provide information and begin negotiations, saying "we see little downside to Circuit City's business by allowing Blockbuster to conduct full due diligence." It also called on the board to set up a "competitive bidding process" that could result in a sale of the company "at a substantial premium" to its trading price.

In its letter, HBK said it believed that Blockbuster could finance "a significant portion" of its offer by tapping Circuit City's own balance sheet. The retailer has about $300 million in cash on its balance sheet, $80 million in a pending tax refund and is trying to sell its Canadian operations. HBK added it "might also be prepared to provide financing" for a transaction.

HBK is the second big investor to call on the company to open its books. Last week, Wattles Capital Management, which owns 6.5% of Circuit City shares, also called on the company to allow due diligence. Wattles Capital has nominated a slate of four directors to the Circuit City board and has sought through a proxy submission to have the existing directors replaced at the company's June 24 annual meeting.

Circuit City has refused to provide Blockbuster financial information, saying it didn't believe the video-rental company could "consummate the proposed transaction in light of the difficult current financing environment."

Blockbuster has threatened to abandon its unsolicited offer unless Circuit City makes available nonpublic financial statements. Activist investor Carl Icahn, a large Blockbuster shareholder, has endorsed the deal.

Source: The Wall Street Journal

Blockbuster weighing options to fund Circuit City bid

Blockbuster Inc (BBI.N) is studying options like using Circuit City's (CC.N) own balance sheet to fund its buyout offer, even as the electronics retailer is asking Blockbuster to prove it can handle an all-cash bid, the Wall Street Journal reported on Monday citing people familiar with the matter.

Blockbuster is also considering using its existing debt facility, possible asset sales and cost savings for the deal, the report said citing the same sources.

Last week, the Dallas-based video rental company offered up to $1.3 billion to buy Circuit City. But the offer has drawn doubts from Wall Street, investors and Circuit City itself over how Blockbuster will fund the bid.

While investors fear that Blockbuster may need to raise new debt or renegotiate its current debt to finance the offer, Blockbuster is hopeful that it has alternative funds to sidestep that possibility, the Journal said, citing people familiar with the situation.

Still, Blockbuster will not go ahead with the offer if it does not like what it sees in Circuit City's financial books, the Journal said in a separate report, citing an interview with Blockbuster Chief Executive Jim Keyes.

Circuit City has not allowed Blockbuster to see its books.

Representatives for both companies were not immediately available for comments.

Source: Reuters

Blockbuster offers $1 billion-plus for Circuit City

NEW YORK (Reuters) - Blockbuster Inc , the No. 1 U.S. movie rental chain, said on Monday it has offered to buy electronics retailer Circuit City Stores Inc for about $1 billion to $1.3 billion in cash.

Blockbuster said it made the unsolicited approach in February, offering $6 to $8 per share. That represents a premium of 54 to 105 percent over Circuit City's closing share price of $3.90 last week, although the troubled retailer's stock traded above $21 last year.

Blockbuster Chief Executive and Chairman Jim Keyes, a former 7-Eleven CEO hired last year with a mandate to turn around Blockbuster, made the offer in a February 17 letter to Circuit City Chief Executive Philip Schoonover, but Blockbuster said Circuit City had so far failed to provide due diligence.

Keyes in the letter said the "new" Blockbuster would be "the most convenient source for media entertainment." Keyes has shifted Blockbuster from a heavy emphasis on online DVD rental to enticing customers through a variety of in-store and electronic offerings, including more emphasis on DVD sales.

Blockbuster said it made the proposal public, "because it believes the shareholders of Circuit City should have the opportunity to participate in determining the destiny of the company."

The combination would result in an $18 billion global retail company that would be "uniquely positioned to capitalize on the growing convergence of media content and electronic devices," the company said in its statement.

"We believe the combination will result in a compelling consumer proposition that will drive significant revenue and margin enhancements as well as costs synergies," Keyes said.

Circuit City was already talked of as a takeover target. Its shares have crashed to multiyear lows in the past year, as it has posted losses.

It has made store changes, including replacing more than 3,000 workers with lower-paid employees -- a move that disrupted its business and upset sales.

Circuit City had an average of 166.5 million shares in its most recent quarter. Its shares closed at $3.90 on the New York Stock Exchange on Friday.

Circuit City and Blockbuster were not available immediately for comment.

Source: GlobeInvestor.com

Don't Call It Blockbuster Video Now

After 10 years of mostly red ink and a revolt led by corporate raider Carl Icahn, Blockbuster swallowed hard and hired James Keyes, the former CEO of 7-Eleven Stores, to turn it into full-service media-delivery company.

Since he arrived in July of last year, Mr. Keyes has slashed costs at the world's largest video-rental chain, closing some 200 stores and customizing and shrinking the rest. The shift comes at a time when overall DVD-rental revenue, which had been rising steadily to $7.5 billion in 2006, has plateaued, according to Digital Entertainment Group in Los Angeles, and DVD sales have fallen $600 million in the last year.

Worse, Blockbuster last year missed a bank covenant and had to renegotiate its credit terms for a fourth time. Yet doom has been averted: Worldwide same-store and by-mail revenue increased 7.4% last year, while worldwide same-store revenue increased 2.9%. Net income increased $29.8 million, and earnings improved 16.2% last year, according to Blockbuster's March 6 earnings statement.

To build on that momentum, Mr. Keyes plans to expand retail selections to offer not only movies and games but game consoles, and eventually other entertainment products and services. He also has something planned for customers who'll never set foot in a Blockbuster: delivery to portable devices, PCs and, eventually, your digital TV at home.

But first, he says, consumers need to get the memo: Stop calling it "Blockbuster Video."

Advertising Age: What did you learn at 7-Eleven that's helped at Blockbuster?

James Keyes: When I first joined 7-Eleven, its demise was also being predicted because of the huge influx of competitors from Exxon to Wal-Mart, all offering lower prices. But I turned to the CEO, Jerry Thompson, whose father was the founder of 7-Eleven over 80 years ago, and he actually passed along his father's words: "Jim, convenience will never die. Products and services will come and go, but the customers will always need convenience. And your job is to deliver what they want, when and where they want it." And interestingly, if you look at the entertainment marketplace, it's all about convenience and convenient access to media and entertainment. We have the opportunity to find ways to become more convenient and relevant to the customer.

Ad Age: How?

Mr. Keyes: We have to be able to challenge the customer and offer new and different ways to find media entertainment. That could be through offering alternative content or exclusive opportunities [such as a new a two-year agreement that gives Blockbuster the exclusive U.S. rental rights for IFC Entertainment's films] or even to provide other forms of media entertainment in the form of books or magazines or games or music.

Ad Age: So it's really about becoming "Blockbuster Media," not "Blockbuster Video"?

Mr. Keyes: Interesting that you should say that, because we're testing various ways to communicating this to the consumer, and "Blockbuster Media" is a more descriptive way of defining the Blockbuster of the future.

Ad Age: You're doing it counterintuitively, though: A softening economy is good for movie rentals, and it also means it's cheaper to advertise. But you're cutting back your advertising roughly 25%. Why?

Mr. Keyes: One of the first actions we took was to pull back pretty aggressively on advertising. Some of our advertising costs were out of line with the returns we expected.

Ad Age: What did you find out about who your customers are? Where were you looking for them, and where are you actually finding them?

Mr. Keyes: We were spending a tremendous amount of our advertising dollars online. That's a very expensive form of advertising, and we found it wasn't the most effective use of our dollars.

Ad Age: Might it be easier to just restart with a new brand?

Mr. Keyes: One of things that attracted me to Blockbuster is that it is a brand known all over the world for media entertainment. My challenge is the same that we have seen Coca-Cola go through in recent years -- and even more recently, Apple -- in redefining the brand so that it means more for the consumer. Apple was successfully able to redefine itself from a computer-hardware maker into an entertainment provider through the iPod and even a retailer through the Apple stores. And Blockbuster has that same opportunity. I believe we can transform the brand by transforming the relevance to the customer by the way we reach out to them in their daily lives.

Source: Advertising Age