Circuit City + Block buster =

So Blockbuster wants to buy Circuit City. What sort of movie would this be. A horror film? Maybe a romantic comedy? Blockbuster has been trying to swoon Circuit City with love letters, and now the movie rental company has gone public with its affection, saying it will pay $6 to $8 a share for the Richmond-based electronics retailer. Blockbuster CEO James Keyes said Monday that combining the companies would create a 9,300-store chain that could sell portable devices and the entertainment for those devices (more on that idea later).

Circuit City has said it doesn’t think Blockbuster can finance the purchase and has urged shareholders to sit tight and wait for more answers. Blockbuster responded by saying it has an über rich board member, Carl Icahn, who can pay for it.

So what’s the likelihood of a deal?

Wall Street seems to think that it’s a lousy idea for Blockbuster, driving down shares of the company’s stock 10%. Most pundits are mocking the deal as the merging of two floundering companies with outdated business models.

It’s probably too early to speculate on what a deal could mean for area businesses. But speculating is fun.
If the deal goes through, expect layoffs at Circuit. In a letter to Circuit CEO Philip Schoonover, Keyes wrote, “Both companies would benefit from complementary products, marketing, management strengths, technology and distribution.” That means cutting staff. Blockbuster could close the Henrico County headquarters and move whatever jobs it values to Texas. And that would put a huge chunk of space on the real estate market.

How all of this affects Circuit’s suppliers and contractors is hard to forecast. In the short-term, businesses will likely carry on as normal.

But firms that help handle the logistics of big moves might have a huge client in the future.

It might also be a good time for head hunters to lure away Circuit City employees who are tiring of the instability and low morale (according to several employees who asked that their names not be used). Or those who don’t want to wear blue shirts.

A potential deal is a mixed blessing for investors, including employees who have the company’s stock in their retirement accounts. On one hand, it locks in losses for investors who bought shares at above $8 per share. On the other hand, it prevents the stock price from plummeting any more, including going to $0. (BizSense previously wrote about the importance of not carrying too much of an employer’s stock here).

Does the acquisition make any sense?

Depends on who you ask. BizSense’s take: unless this is a play to extract value and then radically sell off assets, someone’s taking crazy pills. Blockbuster envisions a combined company that meets two needs. It might be time to rethink that line of thought. First off, nobody is buying new DVD players. And even if they were, not many people want to buy a DVD player and get 10 DVDs at the same time. That’s like buying a new oven range and then getting fresh steaks at the same store.

Plus, Blockbuster is not exactly a movie star. The brick and mortar business is dying in favor of online and mail-order, or on-demand.

What do you think of a possible deal? And how do you think this could play out locally if it does go down?

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