April 20, 2008 9:45 PM PDT

Report: Blockbuster could unplug Circuit City bid

Posted by Jonathan Skillings

Blockbuster seemed to have no qualms about offering roughly $1 billion to buy up Circuit City stores, but it may not have the stomach for a protracted acquisition fight.

(Credit: Blockbuster)

James Keyes, the CEO of video-rental giant Blockbuster, told The Wall Street Journal that his company would proceed with its takeover effort only if conditions are right and that it is loath to go through with a hostile bid. The threat of hostilities is looming, apparently, because Circuit City is not allowing easy access to its books.

"The heart of the matter is that we still need further facts," Keyes told the Journal (subscription required). "With those facts, we can choose whether to proceed or get back to our continued success."

Part of what's at issue is how Blockbuster will pay for the billion-dollar deal, and that has Circuit City saying "Not so fast, 'buster.'" One possible maneuver would have Blockbuster making use of Circuit City's own balance sheet to finance the offer, or using its own existing debt facility, possible asset sales, or belt-tightening, the Journal reports in a separate story, citing people familiar with the situation. There's also the Carl Icahn angle to factor in; the billionaire investor has indicated his support for the idea.

Circuit City has been stonewalling on opening up to Blockbuster for a while now. Blockbuster went public with its acquisition effort a week ago, a month after making its initial proposal to the electronics retailer--and that after having had talks about a prospective union dating back to December.

But however much sense the deal might have made early on in the Blockbuster boardroom, by and large it has most people scratching their heads. As CNET News.com's Jim Kerstetter wrote Monday:

Here's what I do know: You'd get a really big company with about $18 billion in combined sales. It would be saddled with a lot of real estate, and it could achieve some cost savings by shutting down some of those stores. But this isn't some roll-up strategy (like Larry Ellison is doing at Oracle) where costs can be quickly squeezed out and a bigger outfit can just roll in the cash. With this, you have two companies struggling to keep up with both more nimble (Netflix, Amazon.com) and much larger competitors (Best Buy, Wal-Mart, Comcast). It's a lousy place to be.