Blockbuster withdraws offer for Circuit City

Blockbuster has decided not to make an offer for Circuit City:

The move comes less than two months after Circuit City reluctantly agreed to open its books to the movie-rental chain. In a statement, Blockbuster said that unfavorable market conditions and a closer review of the deal's finances led it to withdraw the offer.

The offer was for $6-$8 per share. The stock price dropped from $2.55 to $2.32 after Blockbuster withdrew.

Other reports, though, indicate that Blockbuster may come back to make another offer:

Blockbuster Inc, which abandoned its offer to buy Circuit City Stores Inc this week, may try to acquire the electronics retailer later, the New York Post said Thursday citing insiders.

One source told the paper that Blockbuster "verified the long-term benefits of a deal," and added that a there was a "real opportunity" to cut costs in combining the two chains' operations.

Presumably the new offer would be lower. Or it might even be a case of buying CC out of bankruptcy:

Will Circuit City join the long list of electronics retailers, like Tweeter Home Entertainment and Harvey Electronics, that have filed for Chapter 11 bankruptcy protection in the past year? Given that shares of the Richmond (Va.) company are trading at just over 2, Wall Street is betting that could be a possibility. "Circuit City is in very serious trouble, and any scenario is possible today," says Nick McCoy, senior consultant at TNS Retail Forward, a research firm.

BusinessWeek points out that waiting until the firm enters bankruptcy would allow a new owner to break leases on CC's many under-performing locations.