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Market Continues Blockbuster Beat Down

15 Apr, 2008 By: Erik Gruenwedel

The day after many analysts mocked Blockbuster Inc. for its unsolicited $1.35 billion offer to acquire electronics retailer Circuit City Stores Inc. didn't find much relief for the Dallas-based DVD rental chain.

J.P. Morgan analyst Barton Crockett downgraded Blockbuster's stock from “overweight” to “neutral,” and, in a research note, said the No. 1 rental company's bid “came out of left field.”

Crockett said he didn't buy Blockbuster CEO Jim Keyes' argument that convergent entertainment devices were the key to the company's future.

The analyst said Circuit City already carried the Apple iPod, the top leading convergent device on the market.

He said Blockbuster would have to cut nearly $430 million in annual expenses at Circuit City to make the deal work financially.

The Motley Fool analyst Tim Beyers said Blockbuster's bid made its stock one of the “worst stocks in the world.” He deadpanned that combining the two companies could produce the name Busted Circuit.

Jeffries & Co. Inc. analyst Youssef Squali suggested Blockbuster might sell its online DVD-by-mail operations to Netflix to help finance the transaction. He said the move could generate $175 million.

Michael Pachter, media analyst with Wedbush Morgan Securities in Los Angeles, continued to rate Blockbuster a “strong buy” despite having reservations over the proposed acquisition.

He said he still thinks Blockbuster can achieve a $7-per-share price target due to higher than average earnings growth.

Blockbuster shares closed April 15 down 1 cent to $2.80 per share.

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