Tuesday, April 15, 2008

Blockbuster wants to buy Circuit City

Blockbuster has made an offer to buy Circuit City for $1.3 billion, although there's some question as to whether they have the money.

These are two struggling retailers -- Blockbuster's core business has been destroyed by Netflix and video downloads, while Circuit City hasn't been able to keep up with Best Buy and Wal-Mart. I can't recall a case where two weak stores adds up to one strong one. I recall saying when Kmart and Sears combined that it reminded me of two drunks thinking they can walk home successfully by leaning on each other.

Apparently, I'm not alone in my opinion:

Sanford Bernstein analyst Colin McGranahan called Blockbuster's strategic rationale "vague" and pointed to the "oddness" of the combination.

"Strategically the deal appears to us to be a long-odds attempt by Blockbuster to address its deep structural issues; we do not see significant synergies," McGranahan wrote in a research note.

Blockbuster says otherwise, of course:

Blockbuster said a merger of the two struggling retailers could cut costs, exploit the growing convergence of media content and electronic devices, and bring benefits from selling complementary products.
Could be. Blockbuster is going to have to come up with a very good story, though, to get the money. Their cash-on-hand is more than a billion short of what they're offering.

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