By Mark Clothier
July 1 (Bloomberg) -- Blockbuster Inc., the world's largest movie-rental chain, walked away from an offer of as much as $1.35 billion for money-losing electronics retailer Circuit City Stores Inc. after taking a closer look at its finances.
``Based on market conditions and the completion of our initial due diligence process, we have determined that it is not in the best interest of Blockbuster's shareholders to proceed with an acquisition of Circuit City,'' Jim Keyes, Blockbuster chairman and chief executive officer, said today in a statement.
Circuit City fell 14 percent in trading after the close of U.S. markets, following the announcement.
Blockbuster, based in Dallas, approached the Richmond, Virginia-based retailer in February with an unsolicited bid of $6 to $8 a share, pending a review of its books. Circuit City, which has lost money the past two years, agreed to the examination after billionaire investor Carl Icahn said he would step in if Blockbuster was unable to obtain financing.
Circuit City may now be more attractive to another company or a buyout firm because fewer bidders probably lowers its asking price. Investor Mark Wattles said June 24 Circuit City was drawing interest from at least three suitors, and a deal may happen within a month.
``Circuit City certainly could be in play,'' said Arvind Bhatia, an analyst at Sterne, Agee & Leach, in a telephone interview. ``I would not be surprised if there are strategic buyers,'' he said.
`Ongoing Process'
Circuit City's exploration of strategic alternatives is ``an active and ongoing process'' and not dependent on a purchase by Blockbuster, spokesman Bill Cimino said in a telephone interview. A message left for Carl Icahn after normal business hours wasn't immediately returned.
Circuit City has opened smaller stores and fired higher paid employees to reduce costs after losing customers to larger Best Buy Co. and Wal-Mart Stores Inc.
Blockbuster has dropped 20 percent since its initial offer was revealed April 14. The shares rose 29 cents, or 12 percent, to $2.80 following the announcement, after ending up 1 cent in New York Stock Exchange composite trading.
Circuit City fell 35 cents to $2.20 after the statement. The shares fell 34 cents, or 12 percent, to $2.55 in regular New York Stock Exchange composite trading.
Bhatia wrote in a June 20 research note that the movie- rental chain was more likely to lower its bid or scrap it altogether than formally offer $6 a share.
Bhatia wrote in a June 20 research note.
To contact the reporter on this story: Mark Clothier in Atlanta at mclothier@bloomberg.net
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