Blockbuster shares rise on talk of deal bust

LOS ANGELES (Reuters) - Shares of Blockbuster Inc rose nearly 13 percent on what one analyst said was investor speculation that the movie rental company's deal to buy Circuit City Stores Inc is falling apart.

"People thought it was a bad deal, and Blockbuster shares went down," Wedbush Morgan analyst Edward Woo said. "Now people think the deal is going to get passed off and the stock is going up."

Woo said investors also may be reacting to Monday's steep plunge in Circuit City's share price over concerns about the electronic retailer's ability to turn its business around and prospects for the sale.

Circuit City posted a wider-than-expected quarterly loss last week and said its cash position fell to $92.2 million from $364.1 million a year earlier.

Investors speculated on Monday that the bad news would prompt Blockbuster to lower its takeover bid of $6 to $8 per share, or up to $1.3 billion, or abandon it.

A Blockbuster spokesman said the company was still conducting due diligence and would proceed with the transaction "if it makes sense financially and strategically and also creates significant value for our shareholders."

"We are all interested in a timely resolution to this process and we remain confident in our ability to transform Blockbuster with or without this transaction," Blockbuster spokesman Randy Hargrove said.

Shares of Blockbuster rose as high as $2.84 but were up 4 percent, or 10 cents, at $2.62 on the New York Stock Exchange near the close.

(Reporting by Gina Keating, editing by Mark Porter and Richard Chang)