Circuit City advised Blockbuster can't finance bid

ATLANTA (Reuters) - Circuit City Stores Inc (CC.N: Quote, Profile, Research) said on Wednesday its financial advisers believe Blockbuster Inc (BBI.N: Quote, Profile, Research) cannot complete its proposed buyout of the electronics retailer given current financing conditions.

The retailer, which faces a proxy fight with investor Mark Wattles, also said the movie-rental company has not given answers to "basic questions" regarding its ability to fund its offer of up to $1.3 billion.

"Circuit City awaits a viable financing structure that is predictably executable by Blockbuster given its current constraints of size and capital structure before it would be appropriate to allow further due diligence," Circuit City, which is being advised by Goldman Sachs, said in a statement.

Wattles, who has nominated five people for Circuit City's board, sent a letter on Wednesday asking the retailer to open its books to Blockbuster and allow a competitive bidding process for other potential acquirers.

Blockbuster disclosed last week that it offered to acquire Circuit City for $6 to $8 a share in February. Circuit City responded last week that while it was open to pursuing further talks, it was unwilling to let Blockbuster examine its books, citing concerns about financing.

Circuit City's statement could cast further doubt over Blockbuster's buyout proposal, which has drawn criticism from analysts who follow both companies. They question the strategic fit of the two companies and how the acquisition would be financed given the tough borrowing environment.

The movie-rental company said billionaire investor Carl Icahn, a Blockbuster shareholder, supported its bid and could help with financing.

Wattles, the founder of Hollywood Entertainment Corp, said in his letter that there were reasons why Circuit City should take the Blockbuster offer seriously. He added that Blockbuster was not a competitor, and "could raise a significant portion of the financing from Circuit City's own balance sheet."

The letter from Wattles Capital Management, which owns about 6.5 percent of Circuit City's stock, also cited indications from Blockbuster that it was unlikely to pursue a hostile bid.