Blockbuster / Circuit City doesn’t make any sense
April 14, 2008Today’s announcement that Blockbuster is making a $1 billion bid for Circuit City doesn’t make any sense to me. You’re taking two struggling companies, with entrenched competitors in both spaces, and trying to make one really strong competitor out of the combination. If it goes through it would no doubt wind up being a textbook example of a bad merger that destroys shareholder value.
he reason Best Buy is eating Circuit City for breakfast is that they have been laser-focused and executed much better than Circuit City. They still make money even on appliances, when Circuit City dropped that business several years ago and yet still can’t make a go of it against Best Buy. Adding yet another line of business further erodes their focus. A merged Blockbuster / Circuit City would not have any chance of winning the consumer electronics business.
Meanwhile on the movie end, companies from Netflix to Apple to Amazon are all gunning for the rental / sales business that Blockbuster is in. And those three, especailly Apple and Amazon, are well funded for a protracted fight. It’s not clear to me that Blockbuster benefits spending their billion dollars on Circuit City. They should be spending that building up in their current niche, rather than trying to stretch into a completely different line of business by snapping up Circuit City.
I could be wrong of course. I guess we’ll see, but right now I am willing to bet that if this deal goes thru it falls flat on its face within a year of closing the deal. It’s not quite as monstrous a mistake as AOL / Time Warner but it’s close..