Blockbuster to Circuit City: Drop Dead

(MoneyWatch)  To no one's surprise, really, Blockbuster Inc. called off its proposed merger with Circuit City, but Blockbuster CEO Jim Keyes says he still likes the idea of combining media with electronics and will pursue it in other ways.

And I still like the notion that electronics turnaround specialist Mark Wattles will buy Circuit City. (Think I'm crazy? Hit the "Participate" button below and tell me why.)

He's the guy who founded Hollywood Video, helped it recover from its mistakes, then used the cash from its sale to rescue Ultimate Electronics. Since taking 6.5 percent of Circuit City shares in January, Wattles has managed to get three people on the big-box store's board and persuade management to open the books to Blockbuster and other suitors. That's pretty good for somebody with such a small stake.

Struggling Blockbuster had offered $6 to $8 a share, about a billion dollars all told, which was just nuts, given that Circuit City has been trading below $2.50.

The best analysis of the failed Blockbuster-Circuit City tie-up comes from ClusterStock's Cory Lorinsky: "It's understood that if you stick two bricks together, they still don't float."

News reports this morning that Circuit City is back to Square One aren't quite correct. As you read right here last week, Wattles told Reuters after Circuit City's annual meeting that three companies are in due diligence. " I am very confident that we will be seeing who the buyer of Circuit City is in the next three or four weeks and what the price is," Wattles said.

With the share price so dismal, somebody could snap up the company for a figure that would make shareholders, if not happy, less likely to slit their wrists. Circuit City may not be a balloon, but it's certainly not a brick -- with 687 stores in 158 U.S. cities, plus 775 outlets in Canada, it's sitting on enough good locations to wait out the recession and make somebody money.

Blockbuster shareholder Carl Icahn had said he would pursue a deal to buy Circuit City outright "in the event that Blockbuster couldn't fund a purchase or secure necessary shareholder approval," The Wall Street Journal said. Neither of those conditions were met -- Blockbuster looked at Circuit City's books and decided to pass. Whether Icahn ends up with a piece of the ultimate deal remains to be seen.

Wattles declined to comment to the Washington Post.