It looks like Blockbuster (BBI) is going to get a shot at Circuit City (CC)–for better or for worse. The consumer electronics retailer has retained Goldman Sachs to explore options, including Blockbuster’s offer to acquire the company for $1.3 billion.
Circuit City says it’s satisfied with a pledge from Carl Icahn, Blockbuster’s largest shareholder, to purchase the company himself if Blockbuster can’t get financing or required shareholder approval. As we’ve noted a couple times, Carl’s backing is pretty much the only thing Blockbuster has going for it in this bid: Investors are sceptical that BBI can pay for CC by itself, and don’t think much of the idea, period. But if Carl didn’t like it, it wouldn’t be happening at all.
Circuit City CEO Philip J. Schoonover’s statement:
While the Circuit City board has confidence in the company’s ability to successfully implement its turnaround plan and generate shareholder value, we believe that we can best serve the interests of our shareholders by exploring all possible alternatives to enhance shareholder value. Let me be clear that our decision to allow Blockbuster and Carl Icahn to conduct due diligence should not be taken as an indication that the board has completed its review of the Blockbuster proposal, that the board has taken a position on the company’s value or that it has settled upon a particular strategic course of action.”
We are pleased to have reached an agreement with Circuit City to conduct due diligence and further explore a possible merger between our two companies. We continue to believe this combination would create significant cost and operating synergies therefore unlocking substantial value for our shareholders. While it is our hope that the due diligence process will reinforce both the strategic and financial rationale behind the deal, we are committed to only doing a transaction that provides substantial benefits for our shareholders.
Investors’ response: We still don’t love this thing. CC is up quite a bit today, but still hasn’t broken $5, which puts it a least a buck under the low end of the $6 to $8 that Blockbuster is offering. Meanwhile BBI is close to a 52-week low, at $2.68.