One of the most strangely-timed potential corporate mergers was announced this morning: ailing video rental giant Blockbuster has offered $6 per share to buy ailing retail electronics giant Circuit City, representing a hefty premium over the $3.90 closing price Circuit City fetched on Friday.
Blockbuster thinks the combination would result in a "$18 billion global retail enterprise uniquely positioned to capitalize on the growing convergence of media content and electronic devices." Initial reaction, however, is almost scathing.
CNET's Larry Dignan says "Here’s a deal where 1 + 1 = 0.5." Henry Blodget's reaction: "Tie two bricks together and they still don't float."
They're both right. Both companies are teetering on the edge of oblivion and we're in a recession, no friend to the retail industry.
But, at least Blockbuster CEO Jim Keyes is behaving like a forward-looking CEO of a dinosaur video rental company. Blockbuster has nowhere to go, faces killer competition from Netflix and its recent forays into the online movie distribution business won't help -- there's just too much competition.
Instead, Keyes thinks that Circuit City will provide Blockbuster with the infrastructure it needs to enter the next hot thing: distributing video to TV sets and mobile devices. "What this combination provides is the ultimate distribution channel for [digital] content," he said during a conference call to discuss the bid.
"It's not necessarily downloading content to the PC that will ultimately capture the imagination of the consumer...The opportunity to get that content on your TV and your mobile device is a game-changing opportunity."
But there are major roadblocks to reaching that game-changing opportunity. For one thing, Blockbuster will likely have to incur debt to take Circuit City on. For another thing, Circuit City isn't playing ball.
Blockbuster went public because Circuit City won't take the next steps in making a deal reality. Blockbuster "decided to make the offer public so that the circuit city shareholders can decide for themselves," Keyes said during the call.
Finally, despite the forwarding-looking nature of Keyes' vision of transforming Blockbuster into a leader in delivering Internet video to the TV set or mobile device, there's not a lot of immediate money to be made in this still-nascent sector. We're talking years before mobile TV and web-video-to-the-TV generates enough cash to cover the costs of merging these two dinosaurs.
Cynthia Brumfield at 9:38 AM|Comments(0)
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