Blockbuster, which has been busy trying to fix its own movie-rental business, is making a hostile takeover bid of just over $1 billion for...

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DALLAS — Blockbuster, which has been busy trying to fix its own movie-rental business, is making a hostile takeover bid of just over $1 billion for Circuit City with dreams of creating a huge chain that would sell electronic gadgets and rent movies and games.

The offer is larger than Blockbuster’s entire stock-market value, but Chief Executive James Keyes said he was confident his company can swing the deal and that the move has the support of one of his board members, financier Carl Icahn, who could help with financing.

Icahn, Blockbuster’s largest shareholder, did not return calls for comment.

Keyes said combining the companies would create a 9,300-store chain that could sell portable devices and entertainment for them, much like Apple’s stores. The larger Circuit City stores would have movie-rental stores inside, and Blockbuster locations would offer a limited selection of electronics.

News of Blockbuster’s bid for Circuit City, valued at up to $1.35 billion, sent the struggling retailer’s shares up 27 percent on Monday. Blockbuster shares fell.

Circuit City, the nation’s second-biggest consumer electronics chain, said it doubted Blockbuster could finance the deal and has resisted opening its books.

Analysts said Blockbuster, which is undergoing its own turnaround effort, could be getting more than it can handle in Circuit City. The chain has been fighting a losing battle against rival Best Buy.

“Blockbuster is not thinking through how difficult the big-ticket consumer-electronics business is. It’s pretty audacious … to the point of potentially reckless,” said Michael Pachter, an analyst with Wedbush Morgan Securities.

“Look what happened to CompUSA and Good Guys and Ultimate Electronics,” he said, ticking off the names of chains that failed. He said Circuit City could continue losing market share to Best Buy.

BMO Capital Markets downgraded Blockbuster stock. Analyst Jeffrey Logsdon said he couldn’t understand the strategic value of a hostile bid for Circuit City. He warned the fight could distract the movie-rental company from its own recovery.

Blockbuster has struggled for several years to compete with cheap DVDs from retailers such as Wal-Mart, video on demand from cable and satellite TV operators, and the by-mail rental service of Netflix.

Since joining Blockbuster last summer, Keyes has dumped online customers who were costing more money than they brought in, and bought Movielink, a digital movie-downloading service operated by major Hollywood studios.

Keyes said the moves were working. He said Monday that the company would report first-quarter net income of $30 million, a dramatic reversal of its loss of $49 million a year ago. Analysts were expecting a profit of about $20 million.

Blockbuster approached Circuit City in December, and sent a letter in February to Circuit City CEO Philip Schoonover offering $6 to $8 per share.

Keyes said he decided to go public Monday with a bid of “at least $6” per share, a 54 percent premium over Circuit City’s closing stock price on Friday, after the retailer repeatedly refused to let Blockbuster see its books.

Based on Circuit City’s 168.4 million shares outstanding at the end of last year, the February offer of $6 to $8 per share valued Circuit City at $1.01 billion to $1.35 billion.

Circuit City, with about 680 stores, has been pinning its recovery on smaller concept stores, cost-cutting and its Firedog tech-service business. The company has laid off 3,400 retail workers and hired lower-paid replacements.

Circuit City swung to a profit of $4.85 million for its fiscal fourth quarter due to a $7.3 million tax benefit, but activist shareholder Wattles Capital Management is still seeking better profits and the ouster of Schoonover and the board.

Mark Wattles, founder of the Hollywood Entertainment video-rental chain, said Keyes has moved Blockbuster in the right direction “in the face of severe challenges” and could do the same for Circuit City.

“I have never believed that the turnaround at Circuit City was going to be terribly difficult,” he said in an interview. “It just needs a better management team to accomplish it, to get it done faster.”