Blockbuster Inc. (NYSE: BBI) announced that it offered to acquire Circuit City Stores, Inc. (NYSE: CC) today for at least $6.00 in cash, subject to due diligence. However, Circuit City failed to provide the due diligence necessary to make a definitive proposal and effectively blocked any transaction. Now, Blockbuster is making the proposal public in order to put pressure on the electronics retailer and allow shareholders to participate in the destiny of the company.

"Our proposal offers Circuit City a significant premium to its existing stock price and creates a game-changing retail concept with a sustainable competitive advantage. We believe the combination will result in a compelling consumer proposition that will drive significant revenue and margin enhancements as well as cost synergies," said Blockbuster Chairman and CEO Jim Keyes.

Blockbuster insists that the combination of the two companies would result in an $18 billion global retail enterprise uniquely positioned to capitalize on the growing convergence of media content and electronic devices. It would also allow both companies to benefit from the revenue growth generated by their complementary products, while the resulting synergies would substantially improve consolidated financial performance, thereby increasing shareholder value.

Given Circuit City's $3.90 per share price, this transaction would represent a substantial premium for shareholders. Meanwhile, Blockbuster shareholders would benefit from an obvious diversification away from the troubled DVD rental market and into consumer electronics. In the end, Circuit City shares may be depressed but a turnaround could take years to affect. As a result, this is an offer that will definitely be considered.

Related Companies
RadioShack Corporation (RSH)
Best Buy Co., Inc. (BBY)
Rex Stores Corporation (RSC)

Many department stores have traditionally set themselves apart by installing in-house labels and designer lines made exclusively for them. The move was designed to produce higher profit margins than national brands when times were good, but many fear that the strategy could come back to haunt them now that the markets have turned. Many stores are being forced to mark down the prices of such exclusive lines in a move that could end up hurting the brands' image.

Unfortunately, retailers are also unable to siphon off some of the pain to suppliers since they are themselves the manufacturer. This means that instead of the markdown allowances that national brands provide, these retailers are stuck with even greater losses than they have already experienced. In effect, the strategy is a "double edged sword" says one analyst with Deutsche Bank.

To make matters worse, many retailers are also forced to pay minimum royalties to the brand designers. The WSJ highlighted one such example with Sears Holdings Corp. (NYSE: SHLD) and Kmart, who agreed to pay a minimum of $65 million last year and $20 million this year to Martha Stewart Living Omnimedia despite the lines not meeting sales targets by a long shot.

In the end, many retailers still insist that these products are necessary to differentiate themselves from their competitors. But in a poor economy, it may be wise for investors to start looking at the income states and sales forecasts more closely to see just how much of a retailer's inventory is tied up in these goods.

Related Companies
Kohl's Corporation (KSS)
J.C. Penney Company, Inc. (JCP)
Retail Ventures, Inc. (RVI)
Wal-Mart Stores, Inc. (WMT)
Macy's, Inc. (M)

In completely predictable move that nonetheless is generating lots of attention, Yahoo Inc.’s (NDAQ: YHOO) largest shareholder has criticized Microsoft Corporation’s (NDAQ: MSFT) threat to wage a proxy battle and lower its offer.

Legg Mason Inc. owns around 7% of Yahoo, giving portfolio manager Bill Miller obvious incentive to try and drive the offer price up.

In a WSJ interview, Miller said, “Telling shareholders you're going to take something away from them is not a way to get their support,” in a reference to Microsoft’s threat to simply pull its bid. Of course, in reality telling shareholders that the deal will soon be off the table seems to be a very good negotiating tactic for Microsoft. Yahoo shares were trading around the $20 per share mark prior to Microsoft’s $29 per share bid, and Yahoo shares are likely to stay around $20 for a long time if the deal doesn’t happen.

Miller would understandably like Microsoft to raise its offer – what Yahoo shareholder wouldn’t? But with no viable alternatives for Yahoo, why should Microsoft bid against itself?

The very need for Miller to speak out against Microsoft’s threat proves the threat is already working: Yahoo’s largest shareholder is worried that the Microsoft deal will disappear.

Related Companies
Google Inc. (GOOG)
Time Warner Inc. (TWX)
QuickLogic Corporation (QUIK)
Hollywood Media Corporation (HOLL)