Stock of the Day
|
Blockbuster (BBI)
Blockbuster Withdraws Circuit City Bid
For the last few months, investors and analysts have been talking about Blockbuster's unsolicited offer to purchase Circuit City (CC: Charts, News, Offers). It is a deal that seemed to have both positives and negatives for both companies. The offer was officially announced to the public back in April, but the two companies had already been talking for a couple months before that point. The economy has greatly changed since Blockbuster first decided to make this offer, and as a result, Blockbuster's executives have realized that their strategy needs to change as well. So late last night, Blockbuster announced its decision to withdraw its offer to purchase Circuit City. What are all the reasons for this, and how will investors react?
|
| Daily Chart |
If you are not able to see the chart, your email client probably does not support javascript. To view it, please click here
|
| Stock Analysis |
In April, Blockbuster announced that they were offering to buy Circuit City for over $1 billion, or around $6 to $8 per share. Back when they were considering this deal, Circuit City's stock was hovering around $5 per share. Circuit City initially would not provide Blockbuster with its financial records, so until Blockbuster gained access, the complete details of its offer was not fully known. Both the companies were doing relatively poorly, both losing money last year, and share values declining as well. No one was really sure how Blockbuster would even be able to come up with the money to purchase Circuit City. But the deal was supported by investor Carl Icahn, who owns about 10% of Blockbuster shares, and that fact alone made many people think the deal would go through.
|
Buy Blockbuster for just $4
|
It's pretty clear to see, though, why Blockbuster has suddenly changed their mind. Shares of Blockbuster have fallen about 20% in recent months, and Blockbuster is struggling against competitors such as Netflix (NFLX: Charts, News, Offers), so it doesn't make as much sense for them to stretch their finances to make this deal. Especially since Circuit City's performance has been very weak; their shares have fallen to around $3, which is especially disappointing when you consider that they were above $30 per share just 2 years ago. In Circuit City's most recent earnings report, the company announced their loss had tripled and sales continued to fall. Circuit City is now valued at only a third of Blockbuster's original bid, and Blockbuster has realized that this isn't a company worth buying at this point.
|
Blockbuster has decided to walk away before things get any worse. Shares of Circuit City continued to fall this morning, dropping almost 15%, as investors started to lose hope in the company, even though CEO Schoonover assured investors that the company was still looking for ways to reverse their downward path. Blockbuster investors were relieved that the company came to this conclusion, sending shares up about 15%. Blockbuster still plans to add new features to their movie rental stores, but will look for ways to do this without Circuit City's help. So these two stores have definitely decided not to purse anything together, but both know that they must now figure out something else, some other way to improve their situations and get out of this slump.
|
Special Offer
|
| Buy BBI for just $4
|
Profile |
Click here to view a detailed profile of Blockbuster.
|
|
|
|
|
Back to newsletter list
