Blockbuster Inc.'s announcement yesterday that it will take its offer to buy retailer Circuit City to its shareholders has renewed questions about the future of one of the Richmond area's best-known companies.

The video chain would pay shareholders $6 per share in cash, about $1 more than what the Fortune 500 company closed at yesterday.

A deal could threaten the home-grown giant with nearly 2,700 full-time equivalent jobs in the region, including at the corporate headquarters. Some stores could be closed or downsized, and the Henrico County headquarters might no longer be needed, according to Blockbuster and experts.

James W. Keyes, chairman and chief executive of Blockbuster, said it made its offer in February but went public yesterday because it hadn't heard back and wasn't given access to Circuit City's financial records.

Circuit City countered by asking shareholders not respond while it looked to make sure the video chain could finance the deal.

Both companies have struggled in recent years. Blockbuster was affected as consumers switched from renting videos at stores to getting them online. Circuit City had customer-service problems and increasing competition from discount retailers.

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What could Circuit City look like under Blockbuster?

During a conference call yesterday morning, Keyes told investors and analysts that the two companies could create an "$18 billion global retail enterprise" that serves customers better because product offerings could be combined.

Blockbuster envisions a company where customers can buy digital video programming when they get a new television set. Conversely, a customer renting a video game could try out or buy the latest video-game consoles.

David Urban, a professor of marketing at Virginia Commonwealth University, said the deal left him scratching his head.

"I'm not sure what Blockbuster has in mind," he said. "If I had to predict who would've bought [Circuit City], it wouldn't have been Blockbuster."

The two companies are different, and he has a difficult time seeing how a combination would be an improvement.

Urban said Blockbuster could be looking to get out of the video-rental business and into electronic retailing.

"Maybe they believe their management structure would work well at Circuit City," Urban said.

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What could happen to the local operations?

Keyes did not discuss what, if anything, would happen to the local employees at a call center, five stores and the corporate headquarters.

"I would be very concerned," Tom Arnold, a professor of finance at the University of Richmond, said of local employees.

"What will happen will depend on the structure of the company. Is Circuit City going to be a division of Blockbuster, or will they try to integrate it" into the existing company?

Blockbuster has 18 stores in the area, each employing about 10 workers.

Arnold said Blockbuster might want to leave the video-rental business and get into electronics retailing with its management team, making Circuit City's headquarters unnecessary.

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What will happen to the stores?

Although Blockbuster said it is prepared to absorb Circuit City's business, there is the matter of what to do with the stores.

Circuit City has 693 stores in the U.S.; Blockbuster operates 4,785.

Keyes said 95 percent of Circuit City stores have a Blockbuster within 5 miles. This means some would close to avoid redundancy, he said.

Although Keyes was not specific about how many stores would close, he did say Circuit City would work better if stores were smaller.

If the sale were to go thorough, he said, initial store closings would be limited to Blockbuster stores, but over time the majority of closings would come from Circuit City locations.

Urban said Circuit City's real estate holdings are attractive and could help Blockbuster make money, but ridding itself of stores could have a negative impact on the electronics industry.

Wholesale "closing of stores would be bad for consumers," he said. "Customers need alternatives to Best Buy, and the competition helps keep downward pressure on prices."

As for the Blockbuster properties that would close, Keyes said the chain is in a good position to sublet some of its locations and has short-term leases in others that would keep costs down.

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How would Blockbuster come up with the money?

All the speculation could be moot if Blockbuster can't pay the $1 billion it offered to acquire all of Circuit City's shares.

Raising the needed funds could be difficult given the tightening credit market, Arnold said.

"They're going to have to get a loan to do this, so that means funding is going to be a problem," he said.

In a statement released yesterday, the chain said Blockbuster has been "unable to satisfy Circuit City and its advisors that Blockbuster's proposal could be financed."

Blockbuster, however, is confident that it can raise the money.

Keyes said yesterday that Blockbuster has the backing of its chief shareholder, billionaire financier Carl Icahn.

Arnold said invoking Icahn's name was a way to soothe investors. Arnold said he wouldn't put much stock in that "unless you get a direct quote from Icahn."

Icahn did not respond to a request for comment.

"It's not like he'd just write a check anyway. He didn't get to where he is by making many mistakes," Arnold said.

With all that in mind, Blockbuster's offer could be the beginning of a bidding war.

"We're now going to see who else is out there," Arnold said. It wouldn't surprise me if a private-equity company stepped in and bought it."
Contact Louis Llovio at (804) 649-6348 or LLLovio@timesdispatch.com.