Blockbuster withdraws plan to acquire Circuit City

Chief Executive James Keyes said in a written statement that the proposed deal, at a price of more than $1 billion, didn't make sense because of market conditions. Blockbuster shares jumped nearly 12 percent on the news, while Circuit City shares continued their fall.

Blockbuster, the nation's largest movie-rental chain, will still try to merge content such as movies and games with the sale of electronic devices under one roof--but it will be at Blockbuster's own stores, Keyes said.

Circuit City Chief Executive Philip J. Schoonover said his board was still exploring strategies to help shareholders, which he said didn't require Blockbuster's presence.

The retailer's stock has dropped below $3 from its peak near $31 in May 2006, and the shares have lost about half their value since a one-day rally spurred by Blockbuster's bid. Blockbuster shares have fallen 20 percent since the bid was announced in April.

"Clearly Blockbuster shareholders didn't favor this deal," said Michael Pachter, an analyst with Wedbush Morgan Securities. "The company has done everything right since Jim Keyes took over, except making this bid. ... Circuit City's business is just plain in trouble."

Dallas-based Blockbuster had offered at least $1 billion for Circuit City and planned to create a 9,300-store chain.

Blockbuster went public with its offer after its initial overtures were ignored by Circuit City's board. Eventually, the Richmond, Va.-based company agreed to open its books to Blockbuster.

But the deal--a marriage of two companies that each lost money last year--was viewed with skepticism by many investors. Pressure on Blockbuster to walk away grew in June, when Circuit City reported that its loss tripled and same-store sales plunged 11 percent in the quarter that ended May 31.

It was a difficult period for other retailers too, but Circuit City's performance was worse than rival Best Buy Co., which saw its profit decline in the same period by 7 percent.