Wall Street hates Blockbuster’s Circuit City gambit, in large part because it can’t figure out where Blockbuster (BBI) is going to come up with the $1.3 billion it says it will pay for the foundering electronics chain.
Blockbuster, says the WSJ ($), is trying to calm the street with a two-pronged attack: Arguing it can strip much of the cash it needs out Circuit City (CC) itself — and by mentioning that Carl Icahn, Blockbuster’s shareholder, likes the deal. But they’ve been using that second gambit since they announced the deal last week (by our count they mentioned Carl 3 times during the conference call last Monday). And it hasn’t worked: Circuit City shares have dropped since the bid was announced.
The other problem Wall Street has with idea: Even if Blockbuster could afford it, investors can’t figure out why it would want to do it. And Blockbuster CEO Jim Keyes’ argument — we have to do it or we’re screwed — is neither convincing or reassuring. Today BBI shares are down again, perhaps because of this passage in the WSJ story:
Mr. Keyes was surprised by the market’s negative reaction to a possible deal, people familiar with the situation said. He has spent the past week trying to convince investors that a combination is necessary to enable the video-rental company to compete in a digital era.
Someone in the Blockbuster PR/IR team seems to have figured out how terrifying those lines are, which we’re guessing is why there are not one but two stories about in the WSJ today. The second, much shorter one (six paragraphs, two writers!) presumably cooked up late on Sunday, tries to reassure investors that the company doesn’t have to make the deal, after all. The headline: “Blockbuster Soften Tones On Bid“.
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