Blockbuster Inc., the largest movie-rental chain, made an unsolicited $1.35 billion offer to buy Circuit City Stores Inc. to acquire all of its outstanding shares for at least $6 a share in cash.
Blockbuster wrote to Circuit City Chief Executive Officer Philip Schoonover and bid between $6 and $8 a share for the company, as much as double last week's closing price of $3.90.
The consumer-electronics retailer said its board will continue to carefully consider and evaluate Blockbuster's proposal, adding that it does not believe Blockbuster's proposal can be financed.
In particular, 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, Circuit City said in a released statement.
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.
The offer comes as a time where both companies are struggling to keep up with increasingly tough competition.
Blockbuster began offering movies-by-mail to keep up with online competitor Netflix, while also maintaining its traditional stores. Circuit City has seen rival Best Buy emerge as the option of choice for consumer electronics.
Blockbuster said the combination of the two companies would create an $18 billion global retail company and will be able to capitalize on the growing convergence of media content and electronic devices.
Our proposal offers Circuit City a significant premium to its existing stock price and creates a game-changing retail concept with a sustainable competitive advantage, said Jim Keyes, Blockbuster chairman and CEO.
We believe the combination will result in a compelling consumer proposition that will drive significant revenue and margin enhancements as well as cost synergies, Keyes added.
Circuit City said it and its advisors will investigate the structure of the bid and the uses of funds before consenting to the merger.