Blockbuster to Buy Circuit City?

Blockbuster has made an unsolicited bid for Circuit City. Circuit City has acknowledged receipt of the proposal and has advised its shareholders to essentially relax and stay tuned while they evaluate the documents submitted. This begs a few questions: Circuit City has fundamental "questions" of the proposal, but most seem to focus on the viability of the deal and Blockbuster's ability to purchase the chain.

Nobody seems to be considering whether this is actually a good idea or not. That seems to be a very important thing to consider as well and I'm sure the board is, albeit silently, considering this as well.

Blockbuster has offered $6 to $8 per share for Circuit City (up to $1.35 billion). As a result Blockbuster shares are dropping a bit (down 10.5%) while Circuit City shares are climbing (over 50% as of the announcement). Six weeks ago, Circuit City's fourth largest shareholder wanted the company to oust its CEO and put itself up for sale.

What you have are two fundamentally ailing companies who are looking to join up in order to make both companies stronger. The potential downside of course, is that you simply hasten the demise of both, rather through mismanagement or simply via falling behind a changing market.

It is a unique pairing, with both in possession of some incredible real estate and location capital as well as excellent brand recognition. It is very possible that this deal could result in revival of brands, however we aren't in possession of enough information to evaluate which direction the leverage might take.