Blockbuster/Circuit City Partnership?

Blockbuster/Circuit City: OK, I don't get it either
Posted by Jim Kerstetter/CNET

Sun Microsystems CEO Scott McNealy had a colorful assessment of the planned merger between Hewlett-Packard and Compaq: it's like two garbage trucks, he said, backing into each other in slow motion. (Beep, beep, beep...thunk.)

That brings me to Monday's rather stunning news that Blockbuster, the giant video chain that's seen better days, is trying to buy Circuit City, the giant consumer electronics retail chain that's also seen better days. The offer, which was made in February and is just now becoming public, is worth $6 to $8 per share--between $1 billion and $1.3 billion total. It's about a 54 percent premium above Circuit City's value before the news broke.


This hybrid garbage truck unveiled Monday has a brighter future than Blockbuster/Circuit City.
(Credit: Volvo Trucks)
Now you can argue McNealy was way off base on the HP-Compaq merger, but he'd be spot on if he applied the double-garbage-truck metaphor to Blockbuster and Circuit City. As Peter Kafka at Silicon Alley Insider wrote earlier, it seems like they'd "rather be in a low-margin business than none at all."

In fairness, there is some logic to what they're trying to do. By combining a company that sells the entertainment with a company that sells the equipment that entertainment plays on, you have the mass-market equivalent of Apple's retail stores. If Blockbuster really is developing a set-top box that could allow movie downloads from another Blockbuster acquisition, Movielink, the Blockbuster/Circuit City hookup moves from the realm of the insane to the "nice idea if it were operating in a vacuum" category. At least that's the theory.

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