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Old 07-03-2008   #1
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Default Blockbuster Withdraws Offer For Circuit City Acquisition

On Tuesday, Blockbuster decided to withdraw its offer to purchase Circuit City Inc. Back in April Blockbuster proposed a deal for which they would buy Circuit City shares for $6 to $8, for an average total of $1 billion.

After completion of the initial due diligence process, Blockbuster decided it was not in the best interest of the company to make the acquisition. "Based on market conditions and the completion of our initial due diligence process, we have determined that it is not in the best interest of Blockbuster's shareholders to proceed with an acquisition of Circuit City," said Blockbuster Chairman and Chief Executive Jim Keyes.

Circuit City is reportedly the country's second-largest consumer electronics retail chain. However, Circuit City stock prices have fallen sharply since the announcement of the Blockbuster offer back in April. Just prior to the offer Circuit City shares were valued at $3.90 versus close of trading on July 1st the stocks were valued at $2.55. Just over one year ago, Circuit City stocks were worth about $15 and trading for as high as $31 per share. Part of the decline in share price is also due to Circuit City's post of a fiscal first-quarter loss of about $165 million, or $1 per share.

Blockbuster has also had trouble in the current economic conditions. Over the past year they have closed 412 stores, including GameStation outlets. With the ability to order rentals through Netflix or even Blockbuster online, the cost of maintaining physical locations is increasing.

In an effort to help the entertainment industry market, Blockbuster is also focusing attention on pushing the Blu-ray format. At the Home Media Expo in Las Vegas, Keyes expressed his support of the format. "Blu-ray Disc represents a classic lifecycle extender. It represents a good continuation at least for some period of time five years, 10 years." Keyes also addressed the rising popularity in digital downloads in relation to Blu-ray's life. "We think the rental model can help Blu-ray. If we're slow in doing this, all it does is stimulate demand for digital."
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