A billion dollars for Circuit City?
Faltering video chain Blockbuster is making a $1.3 billion offer for floundering electronics giant Circuit City. And that's prompting a lot of questions -- like, where's it going to get that kind of money? Lisa Napoli reports.
Blockbuster Video and Circuit City signs (Getty Images)
More on Retail
TEXT OF STORY
KAI RYSSDAL: Blockbuster might be down, but it's not quite out. The company's wanted get its mitts on Circuit City for a while now. The faltering video chain made an offer for the floundering electronics giants a couple of weeks ago, put it out in the open today, and just like that, the questions started coming. Questions like: how's it going to work exactly, and $1 billion -- for Circuit City?
We asked Marketplace's Lisa Napoli where Blockbuster might go to come up that kind of money.
LISA NAPOLI: Blockbuster's got less than $200 million in the bank, and a valuation just north of $.5 billion, so how does it cough up more than $1 billion to buy Circuit City?
MICHAEL RUDNICK: To finance a $1.4 billion deal, it's just, it's not there.
That's Michael Rudnick, of the investment trade publication "The Deal." He says given the lousy climate for borrowing money, Blockbuster intends to float a special stock offering to shareholders to pay for Circuit City. If they won't bite, Rudnick says board member Carl Icahn is waiting in the wings.
RUDNICK: If they don't raise the money, he'll put up his own money.
Financing isn't the only tricky question. There's another key issue. Why would two companies with hundreds of millions of dollars in losses want to get hitched, anyway? Erick Shoenfeld, of TechCrunch.com, says Blockbuster and Circuit City have both seen their businesses socked by the digital world.
ERICK SHOENFELD: This is just their attempt to try and salvage something out of their existing assets, but just because they can do it financially, doesn't mean it makes sense strategically.
Unless you consider Blockbuster's raging case of Netflix and Apple envy. They've been beating Blockbuster at the entertainment delivery game. The notion is that teaming up with Circuit City might give Blockbuster an edge, so says analyst Stephen Baker of the NPD Group.
STEPHEN BAKER: For Blockbuster, what I think it offers is opportunities to sell devices that enable people to access media in all sorts of different places.
And the two chains have got plenty of places. Their best asset? The 9,300 stores between them.
In Los Angeles, I'm Lisa Napoli for Marketplace.
