Blockbuster Drops Circuit City Bid

By Danny King

Blockbuster on Monday said it dropped its 4-month-old bid of as much as $1.32 billion to buy Circuit City after the stock market had its worst second quarter in six years. The electronics giant also had said its loss for the most recent quarter widened.

Blockbuster, which almost three months ago said it made the bid in February, will instead try to add electronics products to its inventory of DVD content, Blockbuster Chief Executive Officer James Keyes said in a statement yesterday. Circuit City, the No. 2 U.S. electronics retailer behind Best Buy, said two weeks ago that its fiscal first-quarter loss tripled as a small increase in flat-screen TV sales failed to offset same-store sales declines in home-theater installations, video equipment and camcorders.

“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,” Keyes said Monday in a statement.

The largest U.S. movie rental chain in April went public with a 2-month-old offer to buy Circuit City for $6 to $8 a share, valuing the company at as much as $1.32 billion. Circuit City at the time questioned whether Blockbuster, which is looking to combine its entertainment content with electronic components, had the financing for the acquisition, though it allowed the company to continue its due diligence.

Circuit City shares had plunged 16% as of about noon EDT today, while Blockbuster shares jumped 11%.

A credit crunch and surge in gas prices helped create a pullback in overall investment, causing the Dow Jones Industrial Average to drop 7.4% during the second quarter, the largest second-quarter decline since 2002. The Dow Jones Industrial Average is down 20% since its October 2007 record high.

Circuit City in May hired Goldman Sachs to explore strategic alternatives for the company and last month filed for a shelf registration, which facilitates the company’s ability to issue shares.

“Our exploration of strategic alternatives is intended to serve the interests of our shareholders by considering every possible alternative to enhance shareholder value,” said Circuit City Chief Executive Officer Philip Schoonover in a statement Monday, after Blockbuster announced its withdrawal. “The board's review was not dependent on Blockbuster's participation.”