Blockbuster Bid For Circuit City Starts Wild Stocks Reaction
The proposal reportedly offers a premium price of more than 50 percent to more than 100 percent of Circuit City's share price of $3.90 last week. Circuit City shares are down from a 52-week high of $19.12. Blockbuster reportedly made the offer, for $1 billion to $1.3 billion in cash on Feb. 17, but Blockbuster's market capitalization was down to $517 million on Monday, leading to speculation as to whether it could afford to buy Circuit City.
Circuit City shares increased 30 percent or $1.17 to $5.07 on Monday, while Blockbuster shares were off 17 percent Monday to $2.60, from $3.13 in afternoon trading.
Blockbuster, based in Dallas, disclosed the offering Monday in a statement issued at 2:19 a.m.
Blockbuster said the combination of the two companies would result in an $18 billion company "uniquely positioned to capitalize on the growing convergence of media content and electronic devices." In addition, Blockbuster said the transaction would allow both companies to benefit from the revenue growth generated by their complementary products, while it also cut costs, thereby increasing shareholder value.
However, Blockbuster notes that 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 company wrote in a release.
In its own release, Circuit City confirmed the unsolicited proposal and said it would evaluate it, but the company noted that Blockbuster has been unable to satisfy Circuit City 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," Circuity City wrote in its release.
In addition, Circuit had more "fundamental questions" regarding the structure, sources and uses of funds for the proposed transaction, such as how Blockbuster's existing debt would be refinanced.
At the end of February, Circuit City had 682 stores and 11 other locations in the United States and 779 stores and outlets in Canada.