Blockbuster Offers over $1 billion for Circuit City

By Reuters -  |  Posted 2008-04-14

NEW YORK/LOS ANGELES (Reuters) - Blockbuster Inc (BBI.N: Quote, Profile, Research) said on Monday it has offered up to $1.3 billion for electronics retailer Circuit City Stores Inc (CC.N: Quote, Profile, Research), in the movie rental chain's most aggressive step yet to recast itself as an entertainment hub.

The offer of $6 to $8 per share represents a premium of up to 105 percent on Circuit City's shares' closing price of $3.90 on Friday. The ailing retailer's stock traded above $19 within the last year.

Blockbuster said it made the offer in a February 17 letter to Circuit City Chief Executive Philip Schoonover, but decided to go public with the offer after Circuit City did not provide access to its books.

Blockbuster Chief Executive and Chairman Jim Keyes, a former CEO of 7-Eleven, was hired last year with a mandate to turn around the company. Keyes has shifted Blockbuster's emphasis from purely DVD rental markets, encapsulating both traditional and online rentals, to in-store sales of DVDs and other media such as video games.

He said the "new" Blockbuster would be "the most convenient source for media entertainment".

Blockbuster, which has 7,800 stores worldwide and a market capitalization about $80 million below Circuit City's $656.6 million, said it expects a profit of $30 million in the quarter that ended April 6.

Since taking the helm last July, Keyes has touted the long-term potential in the chain's brick-and-mortar stores and has pulled back on the company's aggressive and costly rivalry with Netflix Inc (NFLX.O: Quote, Profile, Research) for the online DVD rental market.

The restructuring has already started to help Blockbuster, which posted a narrower-than-expected loss in the fourth quarter and recently said it expects to be profitable in 2008.

In addition to stiff competition from Netflix, Blockbuster has also had to contend with the increased consumer adoption of video-on-demand services and movie downloads.

Blockbuster bought last year and has said it plans to make movie downloading to televisions available.

Circuit City has been in a proxy fight with industry investor Mark Wattles, who has demanded that the company remove CEO Schoonover immediately and nominated five people for election to its board at this year's annual meeting.

Wattles has said that Circuit City not only needs new management but should also focus on overhauling its existing stores and consider selling itself.

Circuit City has seen its stock price crash to multiyear lows in the past year, and has posted losses in the past year. It has replaced more than 3,000 workers with lower-paid employees -- a move that disrupted its business and upset sales.

For the first quarter, Circuit City expects a loss from continuing operations before income taxes of $180 million to $195 million -- bigger than the one it posted in the comparable quarter a year ago.

The retailer has said it does not expect year-over-year performance to improve until the second half of the fiscal year.

Circuit City and Blockbuster were not available immediately for comment.

(Reporting by Aarthi Sivaraman and Sue Zeidler; Editing by Quentin Bryar and Quentin Webb)