Rich Fiscus
13 May 2008 12:34
The announcement earlier this year by Blockbuster that they were interested in buying the faltering Circuit City consumer electronics chain were largely greeted by skepticism over the video rental giant's ability to finance the $1 billion bid. But at least one major player, Hollywood Video founder Mark Wattles, is more optimistic about the deal's potential.
Wattles, whose Wattles Capital Management (WCM) holds more than 6% of Circuit City's stock, has a high opinion of Blockbuster's management. He told This Week In Consumer Electronics “I’ve competed against them and they have an exceptional employee hiring and training program.” He also described Blockbuster CEO Jim Keyes as an outstanding chief executive.
Last week Wattles reached an agreement with Circuit City executives that will give WCM a voice on the company's board of directors in exchange for supporting the board's other nominees, avoiding a very public fight that would almost certainly be damaging to the company, at least in the short term.
Meanwhile Blockbuster representatives are getting access to Circuit City's books in order to assess the company's value. Although this in no way guarantees a deal is iminent it does indicate a willingness to entertain serious offers, something Wattles had previously supported in a letter to the Circuit City board of directors.
At first glance it may seem odd that Blockbuster would be taking on the challenge of turning around a company like Circuit City in light of recent decisions to back away from attempts to unseat Netflix from their position as the undisputed leader in online video rental. After all, Circuit City's troubles have been largely tied to their own inability to compete with Best Buy in the consumer electronics market.
But a closer look at Blockbuster's recent move toward finding new brick and mortar outlets suggests a similar strategy that would allow Circuit City to immediately take advantage of an established DVD rental business. At the same time it would provide Blockbuster with strategic locations to expand beyond traditional rental operations and compete in the emerging kiosk-based video rental market.