Circuit City Stores Inc. on Friday gave in to pressure from activist shareholders, essentially putting itself up for sale and agreeing to nominate dissident directors to its board.
The electronics retailer announced that it would open its books to Blockbuster Inc., as well as Blockbuster's largest shareholder, Carl Icahn. It did so after Icahn defused concerns over whether Blockbuster could finance its takeover bid for Circuit City by saying he was prepared to buy the company if all else failed.
Circuit City said Icahn's letter answered some questions related to the potential transaction, and that it would allow the video-rental chain to conduct due diligence in its takeover bid of just over $1 billion with plans for creating a huge chain that would sell electronics and rent movies and games.
The moves by Richmond, Va.-based Circuit City eased some lingering concerns over the company's financial future and helped its stock climb.
Shares of Circuit City rose 28 cents, or 5.9%, to $5.07. Blockbuster's stock fell 2 cents to $2.66.
"The board is taking its fiduciary responsibility to its shareholders seriously," Circuit City spokesman Bill Cimino said. "These actions today, the board felt, were in the shareholders' best interest."
But Chief Executive Philip J. Schoonover cautioned about reading too much into the current state of the discussions, saying the board had "confidence in the company's ability to successfully implement its turnaround plan."
Dallas-based Blockbuster said Friday that it was pleased to reach a due-diligence agreement with Circuit City.
"While it is our hope that the due-diligence process will reinforce both the strategic and financial rationale behind the deal, we are committed to only doing a transaction that provides substantial benefits for our shareholders," it said.