Blockbuster offers to buy, um, Circuit City: digital downloads be damned!

Huh? Blockbuster just made public its February 17th offer to purchase Circuit City for $6 to $8 per share. As of this morning, Circuit city has not provided the requested due diligence necessary to move the deal forward. As such, Blockbuster is pulling a Microsoft and making the proposal public in hopes of inciting shareholders. They've even gone so far as to publish an open letter from Blockbuster CEO Jim Keyes to Phil Schoonover, CEO of Circuit City. Really, is this how all corporate affairs will be conducted in the future guys? What really boggles the mind though is Blockbuster's quest for even more brick-and-mortar as digital downloads begin to take off. Hit the read link for the full contents of the letter.

[Via I4U]

[PJK @ Apr 14th 2008 6:28AM]

Are Blockbuster trying to break further into the consumer electronics business as the rentals business declines to digital downloads? It could be they are using the move to shore up the leaks in their core business by diversifying.

[Mr.Tech @ Apr 14th 2008 11:26AM]

The Blockbuster take over of 2008 will be the BSOD (Blue Screen of Death) for Circuit City. Hahaaha

[Dualboot @ Apr 14th 2008 11:50AM]

The only way this makes sense to me is if they consolidate store locations and sell/rent electronics/DVDs in fewer locations. Real estate is expensive, so this may be a way for both of them to expand their reach. There is no other "cost savings synergy" apparent to me.

BB has been trying to sell itself for a while now and CC's been having a hard time with the Best Buy competition. I don't think this will help either one in a big way.

The only winners (as usual) are the M&A folks at [insert your favorite investment bank here.]

[Kris S. @ Apr 14th 2008 6:35AM]

Oh bloody hell no.

[Sudo @ Apr 14th 2008 6:35AM]

...what

[Derek @ Apr 14th 2008 10:15AM]

Thats a cool avitar. Its one of my favourite films!!

[infinitespecter @ Apr 14th 2008 6:42AM]

"What really boggles the mind though is Blockbuster's quest for even more brick-and-mortar as digital downloads begin to take off."

Which would matter if they were trying to buy Hollywood Video. What does digital downloads have to do with a consumer electronics store?

[Thomas Ricker @ Apr 14th 2008 6:45AM]

M&As are hugely distracting to running a business. If the core business is sick, what will that mean for a combined entity? No wonder CC is dragging its feet.

Thomas

[Ryan Trevisol @ Apr 14th 2008 7:14AM]

I agree with infinitespecter. Circuit City sells newfangled devices to watch them there fancy down-loaded movin' pictures on, too.

[Matt @ Apr 14th 2008 1:54PM]

Well technically BB would have to buy Movie Gallery not Hollywood Video.

[Anthony @ Apr 14th 2008 6:55AM]

epic FAIL !


sigh...-________-"

[Craig @ Apr 14th 2008 6:58AM]

Why does this remind me of the ugly, rejected guy wooing the plain, loner girl in high school?

[guerilla779 @ Apr 16th 2008 7:50AM]

cuz u were him ?

[Gus @ Apr 14th 2008 7:47AM]

Haha! Well, Blockbuster pretty much owns the brick-and-mortar video game market (GameSpot, EB Games, Rhino) as it is, so they're not exactly small fry.

[Rollins @ Apr 14th 2008 11:25AM]

@Gus

Um, Blockbuster doesn't own GameStop, EBGames, or Rhino. They never owned the former two and sold Rhino to GameStop in 2007. I'm pretty sure GameStop owns the B&M games market. :)

[Abuzar @ Apr 14th 2008 12:58PM]

Walmart has a huge share in it. Possibly more than Game Stop.

[Joe @ Apr 14th 2008 7:06AM]

This is a smart move for Blockbuster because they will become more diversified. Circuit City is a horrible store that has already established many premium locations. I hope that the deal goes through so that Best Buy finally has more competition.

Hopefully they will squash Firedog's horrible attempt at custom electronics installation. Stick to selling the electronics while attempting to offer knowledgeable advice before the sale.

My Circuit City impression is failed at nearly every store I have visited around the country. The store layout is miserable, I can never find what I'm looking for because the service is nonexistent. When I finally do get someone to help me they have less product information than required for the job and use annoying sales techniques. Blockbuster probably recognizes Circuit City as a good fixer-upper and will focus on service and store impression to turn a quick profit.

[EdgeOne @ Apr 14th 2008 7:22AM]

And yet, despite all of their shortcomings, I'd rather patronize a Circuit City over Best Buy any day.

[Joe @ Apr 14th 2008 7:25AM]

Don't worry I despise Best Buy and its Geek Squad just as much. However, Best Buy's marketing and store layout is much better than Circuit City's. You have to give Best Buy credit for winning the general population's approval as the store of choice for consumer electronics.

[Craig @ Apr 14th 2008 7:47AM]

Sorry, Joe...when you use the "general population's approval" as your main metric for gadget stores, you've already shot your argument in the foot.

[Joe @ Apr 14th 2008 7:55AM]

..so what is it then?

[Mike @ Apr 14th 2008 8:29AM]

For the 2 circuit city stores in my area, I can say that their service and know-how is much better than the 2 local best buy stores, especially in the areas of car audio and tv sales. Hell, the one guy even quoted engadget when I asked him about blu-ray vs hddvd.

So western PA must have some awesome stores, yo :)

[Patrick @ Apr 14th 2008 10:00AM]

Western PA does have great stores!!

I worked at both Best Buy and Circuit City in north Pittsburgh area. The general population who could care less about electronics went to Best Buy. If you wanted a semi-knowledgeable salesperson who could help you...you went to Circuit City. Although, this was about 2 years after they stopped selling on commission. Back when salesmen actually cared about product and customer service.

[Ysleiro @ Apr 14th 2008 10:35AM]

I have to agree.

I don't despise Best Buy but I do aproach with caution (I do that to about every store though).

Its just that every time I have been bargain hunting BB is never the answer.

I was looking for a CD players for my cousins, Best Buy lost out to Circuit city. I was looking for RAM, BB lost out BIG TIME to Micro Center (found it for half the price !!) and finally I was looking for my 40" and what do you know BB lost out to Circuit City.

[Bigdave2002 @ Apr 29th 2008 11:51PM]

I would have to say your accusations are wrong! The services business is where all the money is at. Don't open your mouth unless you personally know whats going on inside. I work there, I know! We are rated top dog in PC Magazine for getting the best bang for your dollar! Put that in your pipe and smoke it bud!

[Orion @ Apr 14th 2008 8:08AM]

Does this mean that now I could officially "rent" that 50" LCD for the superbowl? That'd be niceeeee....

[Neoprimal @ Apr 14th 2008 8:17AM]

No, that'd be something like a Rent-A-Center or whatever it's called. Kill me dead before I walk into one of those places.

I'd be very interested to see what Blockbuster could want with Circuit City. You know, I HAVE noticed that they're selling some portable gadgets and stuff in the stores, and PS3s as well - but I mean, that's a far cry from running an actual gadget/consumer electronics store.

[Dan Davis @ Jun 25th 2008 11:43AM]

I got the joke, Orion...

[eddy @ Apr 14th 2008 8:14AM]

Quoted from the press release

"Our vision for the "new" Blockbuster is to be the most convenient source for media entertainment. We have undertaken a series of strategic initiatives including enhancement of our core rental business; a transition from solely rental to a concentration on consumer retail; and development of the fast-growing digital download market."

"At Blockbuster, we have successfully deployed a series of strategic initiatives designed to provide our customers with convenient access to media content. These strategic initiatives have already improved our financial results. Driven by strong performance in our domestic same-store revenues, we expect first quarter 2008 adjusted EBITDA to be approximately $110 million versus $23 million for the same period last year. Additionally, net income for the first quarter of this year should be $30 million compared to a net loss of $49 million for the first quarter of 2007..."

Blockbuster quickly wants access to Circuit City's electronics and customers to add more revenue to their bottomline. The are going to compete with Apple and Best Buy stores.

[Stellar @ Apr 14th 2008 8:32AM]

haha... let me tell you how much block buster sucks... they start you off at minimum wage, and their flat annual raise is 10 cents a year. I knew a guy that worked there for 5 years, he started off at $5.00 and when I asked him about it, he was making $5.50 .
Then one saturday, I was hungover and had to show to open the store... I didnt know the regional managers would be showing up ( i handnt shaved, clothes all sloppy, calliks in my hair all over ), and these guys were such prissies. they all wanted me to kiss the guys ass bigtime. there was a box of munchies, which must have been there since their grand opening, and he said I had to sell it before I left for the day... haha.. omg. pathetic! :/ ask me how i know :(

[Dan Davis @ Apr 14th 2008 11:09AM]

@ stellar

Not to sound like a blowhard, but go to college. I bet those "suits" went to school.

And don't get loaded the night before you have to open.

I'm just saying, a little personal responsibility goes a long way.

[Stellar @ Apr 14th 2008 2:50PM]

umm, that was kindof a relic anecdote when I was 18 for my first job. trust me, I have responsibility out the wazoo now and college is overrated. anyways, good times in my book.

[Avenal @ Apr 14th 2008 9:04AM]

While it is obvious that CC is not doing too well at the present time I find it interesting that no one and I mean no one takes the huge changes of the past year in to account, other than the "layoffs" at the beginning of last summer.

CC has gone through a complete restructuring at the store level, a process that was designed to take 4 years to complete was crammed into 2 months to try to beat the holiday season of 07. While I believe it was a mistake for the short term, in the next few years you will see CC begin to take back a large chunk of the market share from BB.

Another thing that is often overlooked when talking about CC is the simple fact that everything the company has is OWNED by the company. There are no monies owed to ANYONE. While this may or may not be a "good" business strategy I do know that CC is not in a position to "need" to sell for such a low amount. Sure the stock is under $5 now, but as I said with the recent transformations that have and are still taking place, you will see CC stock back up in the $20-30 range it was in just a couple years ago.

I am sure if the current board is willing to accept any offer it will be one of at least twice what Blockbuster just offered.

[a.lukenor @ Apr 14th 2008 8:43PM]

To each his own.

CC was always subpar here. The majority of the public knows this. This is why their stores shut down everywhere.

I had a bad experience there once and vowed never to shop their again.

Blockbuster isn't dumb, they see opportunity and if the CC doesn't want to play, then why not appeal to the stockholders? If I invested heavily into CC stock and was offered a 54% premium, of course I'd want to jump on it.

[Chris @ Apr 14th 2008 2:02PM]

actualy circuit city leases most if not all of their locations so they do owe money to people. Lots of money

[Tom Foolery @ Apr 14th 2008 1:55PM]

Everything is owned by Circuit City? Are you saying they have no debt? Because if you say they own their real estate you are mistaken. They lease.

Circuit City is not in the same position as Kmart was, where their business sucked but their assets (real estate) made them a very valuable company.

[Brian @ Apr 14th 2008 9:08AM]

I like the Blockbuster stores in my area. Management puts such an importance on selling add on candy at the counter with every rental that numerous times i've had a late fee "removed" if I bought candy.

[Lao Soup @ Apr 14th 2008 9:15AM]

Can blockbuster even afford to buy circuit city...

[Galley @ Apr 14th 2008 9:22AM]

Apparently CC is only worth $1 Billion.

[Backlin @ Apr 14th 2008 9:33AM]

This is by-far one of the most random buy-outs I have ever read about.

[0megapart!cle @ Apr 14th 2008 9:56AM]

Please tell me I am not the only one who thought this was a very late April Fool's Joke. Blockbuster buying Circuit City??!! Isn't Circuit City a bigger company than Blockbuster? What's next? Is Subway going to try to buy Walgreens and Motorola going to try to buy Apple?? What is this world coming to?

If I were Circuit City, I would fight this tooth and nail. Blockbuster does not understand the tech business, and I can easily see them interfering with what Circuit City does right.

[Miguel @ Apr 14th 2008 12:32PM]

Uh, Moto makes about twice the revenue Apple does in a given year, and they're operating profit is almost equal. Apple has a high overhead for an industry like consumer electronics. And people say they don't price gouge you...

My only point is that Motorola is not "smaller" than Apple. Blockbuster is, however, a smaller fish than Circuit City. This is a "wtf" moment.

[Britboyj27 @ Apr 14th 2008 10:19AM]

Last I checked, Blockbuster wasn't doing so hot either.

Not when I worked for them at least, a corporate Blockbuster store loses $100 the moment the first person clocks in and turns the lights on.

Even with Blockbuster online doing well, I just don't see how they can afford to capitalize on the investment without sinking one or both businesses even further into the red.

[John Stracke @ Apr 14th 2008 10:19AM]

Dinosaurs mating.

http://www.retrologic.com/jargon/D/dinosaurs-mating.html

[Adam Zey @ Apr 14th 2008 11:12AM]

Wasn't CircuitCity behind the laughable failure that was DIVX, remembered now only through a popular but seldom-seen Penny Arcade character?

Great idea, Blockbuster, purchase a company whose only attempt at home video rental made it the laughing stock of the industry. I cheer for your hastened demise.

[WL @ Apr 14th 2008 11:29AM]

Even more kickbacks for block buster from media format proprietors.

[Tom @ Apr 14th 2008 11:43AM]

Is it possible that Blockbusters sees the writing on the wall with digital downloads but they realize that their needs to be some sort of set-top device to make it work and that by acquiring Circuit City that they will have an outlet to sell and support such a device?

[John Aubrey @ Apr 14th 2008 11:51AM]

Kmart bought Sears, and I believe sears was bigger at the time.
Blockbuster is getting it's but kicked by netflix and charges more, no instant viewing. Blockbuster is in trouble, the only thing left they got are stores, and who wants to go to those now when we can be lazy and stay inside and et the movie still

[DRock067 @ Apr 14th 2008 12:08PM]

I've talked to a employee of Blockbuster and they claim the company is moving towards selling electronics and games, as well as renting blu-ray. and offer a type of waldenbooks or barnes and nobles type of atmosphere.

[Paul @ Apr 14th 2008 12:11PM]

This isn't Blockbuster wanting to take over CC, but rather Carl Icahn wanting to control CC.