Blockbuster, Circuit City: Icahn Channeling Lampert?

Well that was quick.

The Wall Street Journal reports this morning that back in February, Blockbuster (BBI) offered to buy Circuit City (CC) for $6-$8 per share, a hefty premium to current prices.

Apparently there’s been no (positive) response.

Contrary to my previous post, not only is Blockbuster avoiding shutting down stores, they seem to be embracing retail. The game’s afoot! With what seems like a generous price (in cash, yet) I wonder why Circuit City hasn’t been cooperative? Could it be that Circuit City’s board has no interest in becoming part of a REIT?

This deal smells like a private equity-type play for real estate driven by Carl Icahn (Blockbuster board member and dealmaker extraordinaire). I hadn’t considered this angle before, since I was focused on the digital media point of view. But if what your biggest asset is real estate, you might as well take advantage of it. Ed Lampert has done this with Sears and K-Mart (SHLD), where the real estate is probably still worth more than the underlying businesses and the company’s market cap.

Presumably, Icahn and Blockbuster CEO Jim Keyes think they can squeeze inefficencies out of operations, shutter underperforming locations, and introduce product/service synergies. Yadda, yadda. You can take the man (Keyes) out of 7-11, but you can’t take the 7-11 out of the man.

No other motivation makes sense. Vertical integration seems a wrongheaded strategy these days. But it would make it easier for Blockbuster to market an otherwise doomed standalone movie rental set-top box (rolling my eyes, here).

Who knows, maybe they could pull this off and end up adding value to both companies. Still, with market-savvy Apple (AAPL) using content to sell boxes, I love the irony of someone thinking that buying a box retailer was going to help move the needle on movie rentals.

Disclosure: I have no position in any of the stocks mentioned here.