Blockbuster Snubs Circuit City

Another potential deal bites the dust.

Blockbuster (NYSE: BBI  ) is walking away from plans to potentially buy Circuit City (NYSE: CC  ) , the DVD-rental giant announced last night.

"Based on market conditions and the completion of our initial due diligence process, we have determined that it is not in the best interest of Blockbuster's shareholders to proceed with an acquisition of Circuit City," Blockbuster CEO Jim Keyes notes in the Dear John press release.

Mr. Market agrees with Blockbuster's decision. Shares of Blockbuster opened 10% higher this morning, while Circuit City's stock plummeted by 15% to hit a fresh all-time low.

It's a crushing blow for Circuit City. Blockbuster initially shocked the market by announcing its willingness to pay at least $6 a share, provided Circuit City let the video star take a peek at the consumer electronics superstore chain's books. Circuit City is trading at nearly a third of that price today.

Did Circuit City's finances fail to woo Blockbuster? I don't think so. Everyone knows that Circuit City is no Best Buy (NYSE: BBY  ) . Blockbuster was going after the established brand, warts and all. The market's displeasure with the potential purchase, which punished Blockbuster's already crushed shares, made it that much easier for Keyes to walk away.

He's not abandoning the notion of adding a little consumer-electronics sizzle to his stores. Keyes is still aiming for a "consumer retail proposition that would bring media content and electronic devices together under one brand."

That probably means going in-house for a solution, instead of pursuing more financially stable companies like Hastings (Nasdaq: HAST  ) , Conn's (Nasdaq: CONN  ) , or hhgregg (NYSE: HGG  ) . They may have cleaner books, but they lack the brand-name pizzazz that Blockbuster is looking for. RadioShack (NYSE: RSH  ) , anyone? The small-box retailer did inch higher on the news.

BlockShack? RadioBuster? They do roll off the tongue rather nicely....

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Longtime Fool contributor Rick Munarriz doesn't go to his local Blockbuster store the way he used to. He doesn't own shares in any of the stocks in this story. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.

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8/4/2010 3:59 PM
BLOKA.DL $0.19 Up +0.01 +0.00%
Blockbuster, Inc. CAPS Rating: *
CC.DL2 $0.10 Down +0.00 +0.00%
Circuit City Store… CAPS Rating: *
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RadioShack CAPS Rating: *