Blockbuster is buying circuit city

[Modelworks]

I never would have seen that coming.
Now they can rent the movies and sell you the equipment to play it on


http://www.pcworld.com/busines..._for_circuit_city.html

Blockbuster has offered to buy Circuit City Stores for as much as US$1.33 billion in a deal aimed at taking advantage of the global trend of putting media content on electronic devices, the U.S. movie rental giant said Monday.

Blockbuster has offered $6 to $8 per share in cash for Circuit City, depending on the results of a check of Circuit City's books. The per share offer presents a huge markup from Circuit City's closing stock price on Friday of $3.90, and values the company at between $990 million and $1.33 billion, based on the number of outstanding shares of stock Circuit City reported in its most recent quarterly earnings.

Merging with Circuit City would create an $18 billion global retail company and substantially improve the financial performance of the two companies, Blockbuster said.

The deal would allow Blockbuster to open up new avenues of distribution to better compete with rival Netflix, whose clients order rental discs on the Internet and receive them by mail.

Circuit City's share price has fallen 80 percent over the past year amid fierce competition with Best Buy and other electronics retailers. Circuit City reported a $319.9 million net loss for the year to Feb. 28, as its sales dropped 5.5 percent to $11.74 billion.

Blockbuster initially made the cash offer directly to Circuit City chairman and CEO Philip Schoonover in a letter dated Feb. 17, it said. But Circuit City has not allowed Blockbuster to perform the due diligence necessary to make a it decided to go public with the offer in the hope that Circuit City shareholders will call for action.

The Blockbuster board of directors has already approved the deal.

Blockbuster said its own turnaround strategies have been paying off. The company expects to report a first quarter net profit of $30 million, compared to a net loss of $49 million the same time a year ago.

 

[ChaoZ]

Now they can be one big company going down in flames.

 

[sohcrates]

seriously. stock is waay up. had i or anyone else ever thought this might happen, we coulda made some $$ !

 

[onlyCOpunk]

Hopefully Blockbuster will clean up Circuit City a little bit. Everyone I've ever been in always feel like a dump.

 

[0roo0roo]

hah, two companies that suck...and now they can suck harder

 

[StageLeft]

Originally posted by: ChaoZ
Now they can be one big company going down in flames.

Heh, it seemed to me that BB was going to have a hard time, especially when they closed down a store here on a very popular corner some months ago. I'd never seen one go out of business before. Whenever I rent movies now I get them from a redbox vending machine at the grocery store for $1.08/night. Blockbuster was over $5 last time I checked years ago, and then they tried to make themselves more attractive by giving a movie for a week or something stupid. Antiquated business, it deserves to die.

 

[ViviTheMage]

I love blockbuster, way better then netflix.

 

[vi edit]

Well that's certainly an interesting business model. I wonder how much of a purchasing discount Blockbuster can pull on movies and games to sell them given the volume they move for rentals.

I'm very intrigued to see what sort of services/products "Circuit Buster" would offer.

 

[Aharami]

Originally posted by: ViviTheMage
I love blockbuster, way better then netflix.

yep. but only because i have a BB store near me. W/o BB's B&M stores to return online rentals to and get free rentals in replacement, Netflix = BB

 

[0roo0roo]

Originally posted by: Skoorb

Originally posted by: ChaoZ
Now they can be one big company going down in flames.

Heh, it seemed to me that BB was going to have a hard time, especially when they closed down a store here on a very popular corner some months ago. I'd never seen one go out of business before. Whenever I rent movies now I get them from a redbox vending machine at the grocery store for $1.08/night. Blockbuster was over $5 last time I checked years ago, and then they tried to make themselves more attractive by giving a movie for a week or something stupid. Antiquated business, it deserves to die.

well they had a long record of treating their customers like sh*t and not caring a bit about film in general. i jumped ship like many to netflix long ago. circuit city is at least 3rd choice store after frys/microcenter/best buy. some how they give off an 80's/early 90s vibe interior that just feels a bit wrong.

frankly i don't see the synergy between the two companies. you fill content on the devices at home, not at the store. blockbuster didn't need to buy an electronics store

 

[Greenman]

So they are going to pay $8 a share for a company that has a market value of $4 a share, and lost $300 million last year.

 

[LegendKiller]

BBI = Trash company with declining revenues, clinging to an outdated business model (B&M rental)

CC = Trash company with declining revenues, clinging to an outdated business model (small stores + non-bulk "elite" pricing + lower volume)

BBICC = Trash company with double declining revenues, clinging to an outdated business model (Lets merge, take on billions in debt, pay out millions in "advisory fees" to banks, and then deliver no shareholder value by merging since this idea is stupid anyway)

Sounds good eh?

This is a desperation move by both companies to "save" their trash companies. It's the same with almost all other trash M&A moves banks have pitched over the last 150 years. About 75% of all M&A's fail to deliver any shareholder value.

This is nothing but Sears/K-Mart and AMD/ATI redux.

 

[fustercluck]

Figured Blockbuster would of gotten hammered over the past few years from people using Netflix and the like, but I guess they're doing alright after all. Charging 8 bucks a rental probably helps.

 

[nageov3t]

weird.

you can't mix fail and crap and expect to get awesomesauce.

reminds me of AOL/Time Warner in the scheme of mergers that make no sense.

 

[TallBill]

Originally posted by: 0roo0roo
hah, two companies that suck...and now they can suck harder

Exactly my sentiments.

 

[Pabster]

2 Dinosaurs destined for extinction.

 

[Nitemare]

Originally posted by: ViviTheMage
I hate blockbuster, sucks worse then netflix.

fixed your post

 

[LegendKiller]

Originally posted by: ropeadope
Figured Blockbuster would of gotten hammered over the past few years from people using Netflix and the like, but I guess they're doing alright after all. Charging 8 bucks a rental probably helps.

lets do a quick runthrough.

In the last 3 years they have burned through $145.7MM in cash. They have 184MM left.

In the last 3 years they have lost a total of $629MM.

Revenues have declined 5.5% from 2005 to 2007, but 2006->2007 posted a .34% increase last year.

Tangible Net Worth is down $38MM

Profitability is falling, as increased competition online has hurt them quite a bit. They did close down a significant number of stores, I believe a 20% reduction, but the overall B&M model is dying.

That is reflected in a stock price that had a high of about $24 5 years ago and is now at $2.78 with a market cap of under 550MM.



That compares to Netflix, which isn't burdened by B&M, which has a market cap 4x that of BBI. It has 1.2bn in revenue, but is actually profitable. Revenue growth was over 20%, while profitability growth was 36.5%. That means they are realizing scales of economy, unlike BBI which is realizing the opposite.

Netflix has more cash on hand than BBI, about 2.5x as much when adding short-term investments into that. Netflix also has a positive tangible net worth. They were marginally cashflow negative due to the short-term investments, but otherwise neutral.


Overall, BBI is getting their asses handed to them by Netflex and are looking for anything to staunch the blood loss. This is a very poor strategy to do so and will ultimately fail.

 

[tw1164]

Decisions like these are why CEOs make $$$$$

 

[destrekor]

This doesn't make sense as a merger, because how is either company going to help the other?

FWIW, I like BB over Netflix, because the Total Access system is awesome. Rent movies online, and get in-store rentals too. However, BD stock is decent in-store, but not a lot of each title, if they even have more than one copy of a movie (can't remember). BD stock online apparently sucks, a LOT of good movies are 'long wait', and they'll ship a movie that's available towards the top of the queue, but while I have that movie, the movie I want becomes available, and when I return the movie I rented, it's no longer available. They need more BD stock for each film, for sure.

+

 

[rivan]

Originally posted by: destrekor
This doesn't make sense as a merger, because how is either company going to help the other?

FWIW, I like BB over Netflix, because the Total Access system is awesome. Rent movies online, and get in-store rentals too. However, BD stock is decent in-store, but not a lot of each title, if they even have more than one copy of a movie (can't remember). BD stock online apparently sucks, a LOT of good movies are 'long wait', and they'll ship a movie that's available towards the top of the queue, but while I have that movie, the movie I want becomes available, and when I return the movie I rented, it's no longer available. They need more BD stock for each film, for sure.

+

Actually I can see a little sense in it. Close many/most locations and make all remaining locations merged content - rental/sales at all stores, expanded inventory at larger stores.

Yes, it's a little bit of a stretch, but when have you ever seen a corporation just fling up their arms and give up? Blockbuster HAD to do something, and this makes at least some sense.

 

[UberNeuman]

Double the suck, Double the Fail.

 

[LegendKiller]

Originally posted by: rivan

Originally posted by: destrekor
This doesn't make sense as a merger, because how is either company going to help the other?

FWIW, I like BB over Netflix, because the Total Access system is awesome. Rent movies online, and get in-store rentals too. However, BD stock is decent in-store, but not a lot of each title, if they even have more than one copy of a movie (can't remember). BD stock online apparently sucks, a LOT of good movies are 'long wait', and they'll ship a movie that's available towards the top of the queue, but while I have that movie, the movie I want becomes available, and when I return the movie I rented, it's no longer available. They need more BD stock for each film, for sure.

+

Actually I can see a little sense in it. Close many/most locations and make all remaining locations merged content - rental/sales at all stores, expanded inventory at larger stores.

Yes, it's a little bit of a stretch, but when have you ever seen a corporation just fling up their arms and give up? Blockbuster HAD to do something, and this makes at least some sense.

Most retail at B&M rental stores suck. BBI also leases many stores, so they have to terminate those to roll into the CC B&M.

Finally, CC B&M stores are too small at this point, that's why they are getting thrashed by BBY. Their revenue per sqft blows goats, tossing in a rental store into already sucky stores is doubly stupid.

All this does is compound the problems both companies have, they cling to outdated business practices and fail to realize their core problems.

 

[imported_Lothar]

The merging 2 horrible companies together that have no synergies...

 

[mundane]

Originally posted by: Lothar
The merging 2 horrible companies together that have no synergies...

.. and don't forget about the backward overflow revenue stream optimization.