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 JULY 2008 BEACON Circuit City – Blockbuster Deal Comes Unplugged
Analysts ask…now what?<Reuters><AP><July 2, 2008>Blockbuster Video said in a report from Reuters on Wednesday that it will not pursue a buyout of Circuit City as such a deal is not in the best interest of the company in the current environment. The market reacted strongly with Circuit City shares dropping as much as 16% during the day’s trading to finish down 9% at $2.32…near its lowest level in almost twenty years.
Investors however bid up Blockbuster shares more than 13% on the news, although it ultimately closed up 6% closing at $2.65.
Soleeil Securities analyst Scott Tilghman told Reuters that, “We didn’t believe that such a debt-laden marriage made sense and questioned the potential synergies that Blockbuster believed might have existed.”
Tilghman went on to suggest he was concerned however, what Wattles Capital Management owner Mark Wattles might do now. Were Wattles, a 6.5% holder of Circuit City stock along with another major holder to dump their shares…the effect on the stock would be disasterous.
With Circuit City shares selling 86% below its 52-week high of $15.53, several analysts and observers in the AP story suggested that other potential suitors may emerge in the days to come. The AP quotes JPMorgan analyst Chris Horvers as saying “due diligence from others is ongoing.”
Horvers also told the AP that vendors are continuing to support Circuit City and that JPMorgan feels that this support will continue through the 2008 holiday selling season before making any type of drastic decision to tighten terms or worse.
However, Horvers noted that “Any move by one large vendor could have a snowballing effect on the company.” |
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