Circuit City shows books to Blockbuster for possible deal

ATLANTA -- The electronics chain also said that Goldman Sachs will help to explore strategic options, and announced an agreement with investor Mark Wattles that effectively ends a proxy fight he planned to wage at its annual meeting in June.

Shares in the electronics retailer climbed 5.8% Friday, closing at $5.07.

Last month, Blockbuster disclosed that in February it had offered to acquire Circuit City for as much as $8 a share, or up to $1.3 billion. Circuit City responded that while it was open to talks, it was unwilling to let Blockbuster see its books, citing concerns about financing.

Circuit City said the movie-rental company had provided additional information that included a letter from Icahn. It said that, subject to being satisfied with his due diligence review, the activist investor and affiliates would "stand ready" to purchase Circuit City if Blockbuster were unable to get financing.

Blockbuster had indicated in a letter to Circuit City that it planned to withdraw its bid if it had not been granted the opportunity to begin due diligence by April 28, according to a regulatory filing.

Circuit City became the focus of takeover rumors as its results weakened in the past year.

It said the decision to open its books "should not be taken as an indication" that it has completed its review of Blockbuster's bid or settled upon a course of action.

Wattles, whose firm owns 6.5% of Circuit City stock, had called for steps to boost shareholder value. Hedge fund HBK Investments, which owns a 9.1% stake in Circuit City and also owns Blockbuster shares, sent the electronics chain a letter in late April urging it to allow competitive bidding.

"The fact that Circuit City reversed its position might be an indication that trends have continued to deteriorate, which might have put incremental pressure on the board to avail the company to alternatives," Lehman Bros. analyst Michael Lasser wrote in a research note.