Blockbuster looking to acquire Circuit City for $1.35 billion

10 May 2008

In a sign of softening up to video rental chain Blockbuster's unsolicited bid for Circuit City last month, the latter has now agreed to let the former conduct due diligence proceedings on its accounts. Sources indicate that this softening of stance by the second-largest US electronics retailer after its combative stand earlier is due in no small measure to a letter sent to it by billionaire investor Carl Celian Icahn, who also happens to be Blockbuster's largest shareholder.

Redmond-based Circuit City had earlier rejected Dallas-headquartered Blockbuster's advances citing the rental chain's probable inability to arrange financing for the billion dollar plus deal. However, with Icahn's letter stating his intention to buy the company on his own if Blockbuster should be unable to finance the deal, subject to certain conditions, the Circuit City management is more hopeful of a deal materialising.

''This written commitment answers some of [the company's] questions with regard to Blockbuster's and Mr. Icahn's previous disclosures,'' Circuit City said in a news release. This was quite a contrast to its negative comments last month when it said it had ''fundamental questions regarding the structure, sources and uses of funds'' for the proposed deal.

However, this announcement was tempered by a statement from Philip J. Schoonover, chairman, president and chief executive of Circuit City, who cautioned against reading too much into the current state of the discussions.

"Let me be clear that our decision to allow Blockbuster and Carl Icahn to conduct due diligence should not be taken as an indication that the board has completed its review of the Blockbuster proposal, that the board has taken a position on the company's value or that it has settled upon a particular strategic course of action," he said in a statement.

Friday's announcement demonstrated how, in these tight credit markets, having a deep-pocketed partner, such as Icahn, or, in the case of Mars's deal to buy Wm. Wrigley Jr. Company, Warren E. Buffett,  is a valuable asset in attempting a large takeover.