Circuit City, the electronics chain, said Friday that it would allow the video-rental company Blockbuster to examine its books, a shift...
Circuit City, the electronics chain, said Friday that it would allow the video-rental company Blockbuster to examine its books, a shift from its initial, highly skeptical stance toward Blockbuster’s unsolicited takeover bid.
A letter from the billionaire investor Carl Icahn, who is Blockbuster’s largest shareholder, seemed to be an important factor in the change. Circuit City said Icahn had pledged, with certain conditions, to buy the company on his own if Blockbuster should be unable to finance the deal.
Circuit City said in a statement that “this written commitment answers some of its questions with regard to Blockbuster’s and Icahn’s previous disclosures.”
The announcement, which added that Circuit City had hired Goldman Sachs to explore strategic alternatives, indicated some progress for Blockbuster’s bid, which is valued at more than $1 billion in cash. Many on Wall Street have called the deal a longshot, in part because of the difficulty of financing it.
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The announcement also demonstrated how, in these tight credit markets, having a deep-pocketed partner — like Icahn or, in the case of the Mars deal to buy Wrigley, Warren Buffett — is a valuable asset in attempting a large takeover.
When Blockbuster first made its bid last month, Circuit City said it had “fundamental questions regarding the structure, sources and uses of funds” for the proposed deal.
Even with the announcement, though, many questions will probably remain about Blockbuster’s proposal to put its video-rental business and Circuit City’s electronics stores under the same corporate umbrella. Both companies have been struggling lately.
Blockbuster said Friday that it was pleased with Circuit City’s decision and continued to believe in the benefits of a merger. But it added that it was “committed to only doing a transaction that provides substantial benefits for our shareholders.”
Circuit City made it clear that it was considering all of its options, and not just the Blockbuster offer.
Also on Friday, Circuit City said it settled a proxy battle that had been brewing with Wattles Capital Management, an investment firm that owns a 6.5 percent stake in the company. It said it would include three directors chosen by Wattles in its board nominations; in exchange, Wattles Capital will not nominate a rival slate.
Wattles Capital has long been pushing Circuit City to consider big changes, like putting itself up for sale.