Citi Maintains 'Buy' Rating on Blockbuster (BBI), Says Negative Sentiment Overdone

May 12, 2008 9:48 AM EDT

Citi maintains a 'Buy' rating on Blockbuster (NYSE: BBI), price target $8.

Citi analyst says, "Despite widespread negative sentiment on BBI's proposed acquisition of Circuit City (NYSE: CC), we believe the potential deal fits with management's current strategy and see compelling reasons for the merger. We expect that CC will be an important piece in BBI management's plans to offer a five point distribution strategy that provides customers with the most convenient access entertainment content and devices-offering customers the ability to get the content they want, on the devices they choose, in the way they want...If BBI successfully integrates CC into its operations, we would likely see meaningful revenue and cost synergies...There are significant risks to the proposed deal, including: 1) the restructuring execution risk; 2) liquidity needs; 3) the potential for market share losses; 4) management capacity issues; 5) greater economic exposure; and 6) the possibility of excess square footage."

Blockbuster Inc. (Blockbuster) is a global provider of rental and retail movie and game entertainment, with over 7,800 stores in the United States, its territories and 21 other countries as of January 6, 2008. [SM]

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