Blockbuster (BBI) turns in a respectable quarter and all of a sudden its proposed acquisition of Circuit City (CC) is a genius move. Just read Citi analyst Tony Wible, who raised his target price for BBI to $8.50 from $8:
A merger with Circuit City gives BBI the opportunity to fast track its in-store transformation, as the company seeks to unlock CC’s hidden value by becoming a place of entertainment and a place to buy entertainment product. We believe CC fits squarely into BBI’s five point distribution plan by strengthening the bridge between consumer electronic devices and movie/game studios. The street largely has admonished this deal, which we believe creates a compelling risk/reward opportunity.
To be fair, Wible isn’t a new convert; he’s been writing about the “hidden value” in the Circuit City deal since soon after it was announced. But he joins Carl Icahn and CEO Jim Keyes in a small, exclusive club of folks who believe this deal makes sense. BBI shares got a tiny bump from its Q1 results, but that’s about Keyes’ competent management of the declining business, and a hedge on the remote possiblity BBI can transform itself into a digital distributor of entertainment, not enthusiasm for buying an ailing electronics retailer.