Blockbuster shelves Circuit City bid

Tue. July 01, 2008; Posted: 09:37 PM

"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," Blockbuster Chairman and CEO Jim Keyes said in a statement.

Keyes also said that Blockbuster still believes in the merits of bringing media content and electronic devices together under one brand, and the company will pursue that strategy through its stores as a way to diversify the business and better serve the entertainment retail segment.

Meanwhile, Richmond, Virginia-based Circuit City said it continues to explore strategic alternatives to boost shareholder value.

The company said it does not plan to reveal further developments unless and until its board has approved a course of action.

Philip Schoonover, chairman, president and chief executive officer of Circuit City, commented, "The board's review was not dependent on Blockbuster's participation. We are diligently working with the parties involved in the process, and intend to continue our thorough approach until such point as the board determines upon a particular strategic course of action. The board has not established a deadline for completing the review."

In April, Dallas, Texas-based Blockbuster announced that it planned to buy Circuit City for at least $6.00 per share or $1 billion in cash, subject to due diligence.

Both companies had been in discussions since December regarding the potential combination of their businesses. In fact, Blockbuster had made a private offer in the range of $6 to $8 per share in February. The company went public with its offer after its initial approaches were ignored by Circuit City's board.

Circuit City finally agreed to open its books to Blockbuster and its largest shareholder Carl Icahn in May. Circuit City also received a letter from Carl Icahn stating he's prepared to buy the company if Blockbuster can't get financing on its own or get shareholder approval.

However, industry experts were skeptical about the merger and its prospective from the beginning. Their skepticism grew in June when Circuit City reported a sharply wider loss for its first quarter, hurt by an 11.3% drop in same-store sales on poor domestic performance.

Consumer electronics retailers are finding the going tough amid increasing competition from discount retailers such as Wal-Mart Stores Inc. (WMT | Quote | Chart | News | PowerRating) and Target Corp. (TGT | Quote | Chart | News | PowerRating), and a pullback in consumer spending. Circuit City and its rival Best Buy are experiencing severe pressure on the top-line and margins, as they fight for survival.

Blockbuster shares closed Tuesday's regular trading session at $2.51, up a penny and gained an additional 29 cents or 11.55% in after hours trading.

Circuit City shares closed Tuesday's regular trading session at $2.55, down 34 cents or 11.76% and lost n additional 35 cents or 13.73% in after hours trading.

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