Blockbuster drops its Circuit City buyout bid

By Tim Conneally, BetaNews

July 2, 2008, 1:18 PM

Blockbuster has withdrawn its proposal to buy out Circuit City, quickly vaporizing the $18 billion combined retail enterprise the video rental company had envisioned.

Jim Keyes, Chairman and CEO of Blockbuster yesterday issued a statement saying that his company has determined the Circuit City acquisition to be "not in the best interest of Blockbuster's shareholders."

Circuit City recently opened its books to Blockbuster so that a due diligence assessment could be made pending an acquisition. Apparently the evaluation of these records was a main impetus for Blockbuster's withdrawal.

Earlier this year, The Wall Street Journal's Herb Greenberg picked Circuit City's Phillip Schoonover as the Worst CEO of 2008, citing the company's widespread employee layoffs as a major contributor to its 80% stock decline over the course of 52 weeks. The company's shares this week have seen a steady decline in trading value.

Schoonover made his own announcement coinciding with Keyes', noting that Blockbusters' withdrawal will not affect Circuit City's "strategic course of action." What that course is, however, was not fully explained. "Our exploration of strategic alternatives is intended to serve the interests of our shareholders by considering every possible alternative to enhance shareholder value...We are diligently working with the parties involved in the process, and intend to continue our thorough approach until such point as the board determines upon a particular strategic course of action. The board has not established a deadline for completing the review."

With Blockbuster's $1 billion dollar bid off the table, investor Carl Icahn's presence remains. Shortly after Blockbuster displayed interest in an acquisition, The billionaire reportedly sent a letter to Circuit City informing the company that he would initiate a buyout if Blockbuster couldn't.

In Keyes' public letter to Schoonover in April he said, "We would seek to differentiate products in both Blockbuster and Circuit City stores by offering exclusive content and content-enabled devices. Both companies would benefit from complementary products, marketing, management strengths, technology and distribution and the resulting synergies would significantly improve consolidated financial performance."

For Blockbuster's future course of action now that Circuit City will not be acquired, Keyes echoed his earlier sentiments, "We continue to believe in the strategic merits of a consumer retail proposition that would bring media content and electronic devices together under one brand. We will pursue this strategy through our Blockbuster stores as a way to diversify the business and better serve the entertainment retail segment."