Blockbuster: I Think Icahn, I Think Icahn … I Know Icahn
A Blockbuster (BBI) acquisition of Circuit City (CC) may not be as much of a long shot as it first appeared. This morning the electronics chain, which has been vocal in its skepticism of Blockbuster’s ability to finance such a deal, finally opened its books to the video rental outfit.
Why the sudden turnabout? Two words: Carl. Icahn. Apparently, the billionaire investor–Blockbuster’s largest shareholder–has promised to purchase Circuit City if Blockbuster is unable to finance the $1.3 billion deal. In a statement, Circuit City Chairman and CEO Philip Schoonover made it quite clear that Icahn is about the only thing Blockbuster has going for it in this particular gambit and cautioned against reading too much into the sudden opening of its books. “While the Circuit City board has confidence in the company’s ability to successfully implement its turnaround plan and generate shareholder value, we believe that we can best serve the interests of our shareholders by exploring all possible alternatives to enhance shareholder value,” Schoonover said. “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.”
Not yet, at least. In that same statement, the retail chain said it has hired Goldman Sachs & Co. to explore strategic alternatives, which may include a sale of the company. Seems Circuit City’s board may not have as much confidence in the retailer’s turnaround plan as Schoonover would suggest. And why should it? Circuit City has been posting losses amid declining sales for some time now. And though it has restructured itself a bit, it continues to hemorrhage market share to Best Buy and Wal-Mart et al. That said, selling itself to another struggling company with an outdated business model hardly seems a good solution to such problems. It’s like two drunks propping each other up on the dance floor.