Blockbuster reveals offer for Circuit City

By Lisa Kerner

Charlotte, N.C., April 14 - Blockbuster Inc. said Circuit City Stores, Inc. failed to provide due diligence following a Feb. 17 offer made by Blockbuster to acquire Circuit City for at least $6 per share in cash in order to create "an $18 billion global retail enterprise."

As a result, Blockbuster has not been able to make a definitive proposal, a Blockbuster news release stated.

Blockbuster said it made the proposal public because it believes "the shareholders of Circuit City should have the opportunity to participate in determining the destiny of the company."

"Our proposal offers Circuit City a significant premium to its existing stock price and creates a game-changing retail concept with a sustainable competitive advantage," Blockbuster chairman and chief executive officer Jim Keyes said in the release.

"We believe the combination will result in a compelling consumer proposition that will drive significant revenue and margin enhancements as well as cost synergies," Keyes added.

Blockbuster said it expects its first-quarter 2008 adjusted EBITDA to be approximately $110 million, compared with $23 million for the same period last year, with net income for the first quarter expected to be $30 million, compared with a net loss of $49 million for the first quarter of 2007.

"These results are a clear demonstration that our strategy is working," Keyes said, adding that the Dallas in-home movie and game entertainment company looks forward to reaching an agreement with Circuit City "as soon as possible."

Circuit City, a Richmond, Va.-based electronics retailer, has been under fire from investor Wattles Capital Management, LLC for its performance. Wattles Capital, with a 6.5% stake in the company, sought to replace board members as well as chairman and CEO Philip Schoonover, it was previously reported.

In an April 2 letter to Circuit City, Wattles Capital cited its turnaround of a 32-store chain of consumer electronics stores acquired as a result of Ultimate Electronics' bankruptcy in 2005. According to Wattles Capital, Ultimate Electronics and Circuit City stores have approximately the same square footage and both compete "head to head" with electronics retailer Best Buy Co., Inc.

Like Circuit City, Ultimate Electronics was also adversely affected by "poor assortment planning and in-store merchandising, suboptimal and inconsistent pricing, ineffective promotional strategies, and high store-level employee turnover coupled with low morale," Wattles Capital said.

Wattles Capital said that with Ultimate Electronics, it assembled a new management team, formulated a company-wide plan to build sales and rebuilt the stores' sales culture and employee morale.

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