Blockbuster offers up to $1.3 billion for Circuit City

By Karen Jacobs and Sue Zeidler

ATLANTA/LOS ANGELES (Reuters) - Blockbuster Inc (BBI.N: Quote, Profile, Research, Stock Buzz) said on Monday it has offered up to $1.3 billion to buy electronics retailer Circuit City Stores Inc (CC.N: Quote, Profile, Research, Stock Buzz), a bid that drew questions and criticism from Wall Street.

While Blockbuster touted the move as a strategic combination of retailers focused on electronics and digital media, investors were skeptical, and shares of the video rental chain fell 10 percent.

Circuit City shares rose $1.07 or 27 percent to $4.97, but the company said Blockbuster had been unable to satisfy concerns that it could finance the bid of $6 to $8 a share, which was first made in a letter in early February.

The higher end of the range would be more than double Circuit City's recent stock price but less than half the 52-week high of over $19 at which it traded last year.

"I think (Blockbuster is) trying to steal a company and take advantage of shareholders at Circuit City who don't really understand the value of the business," said Dennis Bryan, a partner and portfolio manager with First Pacific Advisors, which owns Circuit City shares.

Sanford Bernstein analyst Colin McGranahan called Blockbuster's strategic rationale "vague" and pointed to the "oddness" of the combination.

"Strategically the deal appears to us to be a long-odds attempt by Blockbuster to address its deep structural issues; we do not see significant synergies," McGranahan wrote in a research note.

Blockbuster said a merger of the two struggling retailers could cut costs, exploit the growing convergence of media content and electronic devices, and bring benefits from selling complementary products.