BLOCKCITY

Nothing much concrete to base this on, but here's my read.

1,) We're already in a difficult economic place right now. Borrowing is tougher even for solid businesses.

2.) Blockbuster doesn't have enough cash to make this deal happen. They'll need to get financing.

3.) The financing would not be anything conventional, given the financial states these two companies are in.

4.) Icahn's involvement gives it some credibility, and might open some financing doors, but it's questionable if Blockbuster and Icahn will be able to sway lenders.

5.) It will probably end up being a leveraged buyout financed with junk bonds. There's no other way I know of to make this fly.

6,) Overcoming the skepticism, getting approval of the boards, putting together and selling a junk bond issue, dotting the i's and crossing the t's, etc. takes a lot of time.

7.) If it happens at all, there's no way it will happen by August 31, 2008, the deadline of the prop.

Short short short.

Notice the prop just says "announces publicly that they will buy Circuit City?, not that they actually do. Does this make a difference, Vulgarian?

How can they announce they "will" buy Circuit City unless they already have the agreement of the players that need to be involved?

Microsoft would be better qualified to say the "will" buy Yahoo without everyone agreeing, because MS has the cash, the hutzpah, and the position to declare it even if no one else agrees.

But MS is not doing that, because there would be no point to it. It's called "painting yourself into a corner".

Blockbuster will not announce that they will buy Circuit City until they have agreements of the boards and guaranteed financing for the buyout.

This won't make any sense until you hear about a billion-dollar financing deal to make the buyout happen. Until Blockbuster can get the money... and I doubt they can... Blockbuster will not make any such announcement.

Despite today's big jump in the price of this stock, it's still looking short. In fact... it's looking shorter.

Since Circuit City isn't taking the proposal seriously, one of the minority owners of City's stock (two of them are involved, but only one, Mark Wattles) is pushing for a proxy fight to change the board of directors. The article is here at

http://www.twice.com/article/CA6557404.html

Read the part in the article that says "Results of the proxy fight are expected to be announced at the retailer's annual meeting on June 24." in the middle of the article.

So, unless City decides to get kissy-face with Blockbuster sometime soon, they won't even have the results of the proxy fight until almost July!

So really, nothing can even begin until the proxy fight results are announced, and then the board would have to vote on the deal, and then put the deal together, and then get the financing ironed out...

This is shorter and shorter. Blockbuster would have to have a finalized deal ready to roll to announce they were buying Circuit City, and they'd only have two months to do everything.

Of course they could announce that they INTEND to buy Circuit City before the deal is finalized, but they will not be announcing that they WILL be buying it until that deal is ready to go.

vulgarian forgot his three favorite words: short, short, short

Wow, Icahn suddenly got a whole lot more agressive about his role in this, saying he'll actually buy Circuit City himself if Blockbuster doesn't!

Further, Circuit City agreed to open it's books for Blockbuster's examination.

AND Circuit City made an agreement to end the threatened proxy fight.

http://www.usatoday.com/money/industries/retail/2008-05-09-circuit-city-icahn_N.htm?csp=34

Three major hurdles overcome in what, a day?

But they still have a few tough tasks ahead of them. There's still the ongoing skepticism with which this deal is viewed, not just by the public but by Circuit City as well.

"Circuit City said the Icahn letter answered some questions related to the potential transaction. But Philip Schoonover, Circuit City's chairman, president and chief executive, cautioned about reading too much into the current state of the discussions.

"'Let me be clear that our decision to allow Blockbuster and Carl Icahn to conduct due diligence should not be taken as an indication that the board has completed its review of the Blockbuster proposal, that the board has taken a position on the company's value or that it has settled upon a particular strategic course of action,' he said." (from the article above)

Further, we don't really know what the Blockbuster stockholders think of it, although Wattles (6.5% owner) and Icahn (10-15% owner) would give them a healthy voting block to start with.

This still looks pretty short... but not as bad as it did the day before yesterday.

This is not a short anymore. Carl Icahn is on board and that means $$$$$$$$$. Both companies stink right now and they need each other to remain solvent. This pays out if they announce that they will merge. Although the word "will" is alittle troubling, you could take that to mean that they ARE going to merge, as in, the deal is done and its going to happen. You could also take it to mean that they will begin negotiating a merger. If we're talking about announcing a formal bid for the company then this is long for sure.

Some clarity would be nice.

Man Icahn is a major player in two huge mergers being considered, MS and Yahoo, and BB & CC. In both he is the dominate force.