Blockbuster + Circuit City=?

Uh, good question. The two companies will be able to share stores and run joint marketing campaigns. But Circuit City doesn't have much else on offer. And neither does Blockbuster for that matter.

Both companies will probably be sent in for a make over, then their owners will extract as much as possible out of them, and eventually run them into the ground...

That's if Blockbuster can raise the cash in the first place. Icahn (who owns 16% of Blockbuster) wants to do a rights offering... hmmm, any such offering would be very very dilutive...

The investment thesis is predicated on expectations of convergence between the movie-rental business and consumer electronics. I think the end game would be that Circuit City stores start offering rentals, while smaller Blockbuster stores would add portable consumer electronics to their product offering. The aim is to cut out massive redundant costs and sell off overlapping assets between the two companies (both at the store and corporate-level).

Seems like a move of desperation to me. Tying together two sinking ships doesn't create a single, seaworthy one.

$hit + $hit = $hit

actually, $hit + $hit = twice as much $hit

I wonder which bank is advising these guys on this. They're probably having a laugh.

We actually looked at taking CC private for a hot second, but our internal valuation was MUCH lower than what Blockbuster paid.

Circuit City needs new management more than anything.

Why open all those new stores when your existing ones can't get it right?

That's the thing - we have operating partners with extensive specialty retail experience (former CEO of a large public specialty retailer). We would have supplanted existing with new management.

I think deal breaker explained it the best:

Statement:

"We are also willing to pursue alternative structures which would enable Circuit City shareholders to receive stock and participate in what we believe would be an exciting future for the combined enterprise," Blockbuster on their Circuit City offer."

English: "Now that the bottom has totally fallen out of our business, if we don't trade our stock for something before investors put it together that we are essentially doomed, we will have nothing left. Since we can't find a business model to claim any kind of synergies with, we picked one that sells DVD players. We know lots about DVDs. Makes perfect sense, really."

The only way this makes any sense is monetizing some of the redundant real estate this deal would create.

I agree that I don't see a whole lot of further synergies but hey both Blockbuster and CC are screwed as stand alone entities.

Do people still rent movies? Movie distribution will be the sole domain of cable (maybe phone/satellite) companies w/in a decade.

On an aside, I'm not going to bet against Icahn.

He is pretty damn good though. Still, I don't really see the logic of this deal either... consolidating dying industries? Great.

People are saying that Netflix will be the ultimate winner here, but haven't they been struggling lately?

Putting aside all logic of how the deal actually makes sense, all I can figure is that (as others have speculated), it must be a real estate play, especially with Icahn's involvement.

If I were the Analyst working on this deal I would be laughing right now (well, after recovering from multiple all-nighters just before the announcement).