Blockbuster Makes Unsolicited Offer for Circuit City

In another of those "you haven't said yes so we're going to the public" deals that seem so common nowadays, Blockbuster has announced it has made an offer to Circuit City for a "combination" of the two companies.

The offer, made on February 17th, apparently wasn't swiftly responded to, and because, as Blockbuster said in a press release:

Unfortunately, to date, Circuit City has failed to provide due diligence necessary to allow Blockbuster to make a definitive proposal. Blockbuster is making its proposal public because it believes the shareholders of Circuit City should have the opportunity to participate in determining the destiny of the company. In addition, as Blockbuster has other strategic opportunities, its offer is conditioned upon timely commencement of the due diligence process.

The offer is for at least $6 per share and equate to $1 billion, or approximately 54% more than Circuit City's current value. In its letter to Circuit City, Blockbuster said the offer could go as high as $8 / share, based on "due diligence."

Part of the letter says:

The combination of Blockbuster and Circuit City will result in an $18 billion retail enterprise uniquely positioned for the convergence of media content and electronic devices. 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.

It seems that Blockbuster sees the "someday movies will mostly be downloaded" writing on the wall and thus wants to get into some sort of hardware sales. Of course, as Best Buy has been beating Circuit City into submission of late, I'm not sure a combination of these two would make a difference. Of course, let's not forget Netflix vs. Blockbuster on the other side of the fence.

At the same time, as has been typical of late, the company in question, Circuit City, has acknowledged the unsolicited offer, and said "hang on, don't do anything" to shareholders.

Circuit City also indicated it has doubts Blockbuster could follow through:

The Company noted that its Board of Directors 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 particular, Blockbuster's proposal appears to contemplate a rights offering of unprecedented size relative to the issuing company's market capitalization and at a price that is at a significant premium to Blockbuster's current market price. Circuit City's advisors have noted that most rights offerings, of which there have been very few in the United States, occur at discounts to market.

Full text of the letter from Blockbuster to Circuit City and the tepid response are as linked above.

Sure is "unsolicited takeover" season, isn't it? Not that this will distract us from the "Microhoo" drama.