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Will Icahn Control The CE Industry?

I read with great interest today TWICE Editor Alan Wolf’s report that Blockbuster and billionaire investor Carl Icahn may be offered the chance to acquire Circuit City after all.

The big-box CE retailer, apparently, is now caving to pressure from investors to entertain the offer, and Blockbuster reportedly notified Circuit City that Icahn was prepared to purchase the CE chain himself if Blockbuster does not.

The question is this: What possible synergies are at play behind the scenes to motivate such interest at a time when both Circuit City and Blockbuster are seeing significant declines? And will Carl Icahn dictate the types of CE products the industry will be selling in the future?

Unfortunately, we are still awaiting Mr. Icahn’s first blog on the matter, but Blockbuster has made no secret that it is struggling to build its online video offering, and rumors have surfaced that it will possibly employ its own CE set-top box as the delivery mechanism.

That plan should help Blockbuster in its battle over Internet video distribution with rival Netflix, and acquiring controlling interest in Circuit City could also help Blockbuster dictate the types and brands of hardware sold to consumers. It would also offer tremendous influence over the online services future products may add in bundles. It could ultimately determine the next-generation devices you’ll have access to in the future.

This isn’t the first time Icahn’s financial dalliances have caused a stir in the consumer electronics industry. A few short years ago, Icahn’s status as a major Time Warner investor reportedly influenced the company to give up its exclusive status as an HD DVD format backer and add support for Blu-ray Disc.

Icahn’s micro interest in an HD disc format that at the time was such a small portion of the huge media empire’s overall portfolio was puzzling, but made more sense after considering his interest in Blockbuster, which also became an exclusive Blu-ray Disc chain.

We all know where the Warner Bros. and Blockbuster decisions led in the high-stakes format war, and although he later reduced his holdings in Time Warner, the eventual outcome was a bonus all the way around for Icahn. You’ll have to decide if killing off HD DVD was a bonus for you.

Icahn isn’t the only one with Blockbuster ties who would like to see a Circuit City takeover. HBK Investments, which owns a 9.2 percent stake in Circuit City plus 8 percent of the class A stock and 5 percent of the class B stock in Blockbuster, said recently that it also wants to see the Blockbuster/Circuit City deal go through.

The fund, which has said it might even be able to provide financing for the deal, said it believes that by combining operations over $300 million per year in increased EBITDA could result through cost savings from maximized operations. That will buy a lot of Blu-ray Discs.