Circuit City, the electronics chain, said on Friday that it would allow the video rental company Blockbuster to examine its books, a shift from its initial, highly skeptical stance toward Blockbuster’s unsolicited takeover bid.
A letter from the billionaire investor Carl Icahn, who is Blockbuster’s largest shareholder, seemed to be an important factor in the change. Circuit City said that Icahn had pledged, with certain conditions, to buy the company on his own if Blockbuster should be unable to finance the deal. Circuit City said in a statement that “this written commitment answers some of its questions with regard to Blockbuster’s and Mr Icahn’s previous disclosures.”
Circuit City shares were up about 8 percent in afternoon trading; Blockbuster shares were essentially flat.
The announcement, which added that Circuit City had hired Goldman Sachs to explore strategic alternatives, indicated some progress for Blockbuster’s bid, which is valued at more than US$1 billion in cash. Many on Wall Street have called the deal a long shot, in part because of the difficulty of financing it.
The announcement also demonstrated how, in these tight credit markets, having a deep-pocketed partner — like Icahn, or, in the case of the Mars deal to buy the Wm Wrigley Jr Co, Warren Buffett — is a valuable asset in attempting a large takeover.
When Blockbuster first made its bid last month, Circuit City said it had “fundamental questions regarding the structure, sources and uses of funds” for the proposed deal.
Even with the announcement, though, many questions will probably remain about Blockbuster’s proposal to put its video-rental business and Circuit City’s electronics stores under the same corporate umbrella. Both companies have been struggling lately.