Circuit City Rises as Buyout Talk Picks Up

Updated from 12:33 p.m. EDT

The chance of Circuit City CC being acquired appears to have increased significantly.

That's because the consumer-electronics retailer said it has agreed to open its books to potential buyer Blockbuster BBI and the video-rental chain's largest shareholder, billionaire investor Carl Icahn.

If he's satisfied with a review of the company, Icahn said he is prepared to step in and buy Circuit City himself should Blockbuster be unable to secure financing or a majority shareholder vote. The news pushed shares of Circuit City 6.7% higher to $5.11. Blockbuster was lately down 1.1% to $2.66.

"We are pleased to have reached an agreement with Circuit City to conduct due diligence and further explore a possible merger between our two companies," Blockbuster said in a statement. "We continue to believe this combination would create significant cost and operating synergies, therefore unlocking substantial value for our shareholders. 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."

In April, Blockbuster said it offered to acquire Circuit City for at least $6 a share two months earlier. However, Blockbuster said, the target company showed no interest in a deal. Since that announcement, the two companies have seen their respective stocks go in opposite directions. Circuit City shares have surged 33.8%, while Blockbuster has slumped 15.3%.

Many have questioned the value of a merger between the two struggling companies. Blockbuster faces significant competition from movies-by-mail company Netflix NFLX, while Circuit City has seen Best Buy BBY continue to dominate in consumer electronics sales.