Richmond, Va. – Circuit City is doubtful that Blockbuster can swing the $1 billion it has offered to buy the struggling CE chain, and is unwilling to provide further due diligence information until the funding issue and other “fundamental questions” are answered.
In a statement released today, Circuit City said it had already received and considered a similar proposal from Blockbuster, with which it has been exchanging information, but that the movie rental chain has been unable to convince Circuit and its advisor, Goldman Sachs, that the offer could be financed.
“Blockbuster’s proposal appears to contemplate a rights offering of unprecedented size relative to the issuing company’s market capitalization and at a price that is at a significant premium to Blockbuster’s current market price,” the CE chain noted. “Circuit City’s advisors have noted that most rights offerings, of which there have been very few in the United States, occur at discounts to market.”
After Circuit failed to provide additional due diligence, Blockbuster said it decided to go public with the proposal because the CE chain’s shareholders “should have the opportunity to participate in determining the destiny of the company.” Blockbuster also said the offer is contingent upon a timely start to the due diligence process, as Blockbuster has other strategic opportunities to pursue.
Besides the funding issue, Circuit said it has a number of other fundamental questions regarding the structure, sources and uses of funds and consents required for the transaction. Among the questions:
Whether the proposed acquisition would require a refinancing of the existing Blockbuster debt, and if so, what the terms and structure of any new debt would be;
how large a rights offering would be required to fund the transaction and what steps Blockbuster has taken to provide a backstop to ensure successful execution of the rights offering contemplated; and
what precise internal and external approvals Blockbuster anticipates for a proposed transaction, including approval of the contemplated rights offering by Blockbuster shareholders and registration of the offering with the Securities and Exchange Commission.
Circuit said it is unwilling to embark on “a highly conditional undertaking” until these questions are answered satisfactorily, and is telling its shareholders to take no action while its board and advisors continue to consider and evaluate the proposal.