Struggling electronics retailer Circuit City Stores Inc. (CC) announced Friday that it has put itself on the auction block and has hired Goldman Sachs Group Inc. (GS) to help target "strategic alternatives."

Interested suitor (and also a struggling media outlet) Blockbuster Inc. (BBI) couldn’t be happier. Last month, Blockbuster and its billionaire board member Carl Icahn made an unsolicited offer to buy Circuit City for as much as $1.35 billion, or between $6 and $8 a share.

Shares of Circuit City rocketed more than 10% to $5.34 shortly after the announcement.

Circuit City Chief Executive (and former Best Buy big wig) Phillip Schnoover has been on the hot seat since taking his post in 2006. Circuit City shares have fallen more than 67% in the past year.

One of his biggest critics is Mark Wattles, whose Wattle Capital Management LLC owns a 6.5% stake in the Richmond-based company. He lobbied to replace Schnoover and attempted to gain five seats on the board. Circuit City announced separately that it has reached an agreement with Wattles and will seat three of his nominees for management.

As part of its announcement, Circuit City said it will allow Blockbuster and billionaire Carl Icahn a look at its financials. But Schnoover was quick to point out that it’d be just a look.

"Let me be clear that our decision to allow Blockbuster and Icahn to conduct due diligence should not be taken as an indication that the board has completed its review of the Blockbuster proposal, that the board has taken a position on the company’s value or that it has settled upon a particular strategic course of action," Schnoover said in a company statement. 

Previously, Circuit City didn’t open its books to Blockbuster because it was concerned about the struggling movie renter’s plan for financing.

"To date Blockbuster has been unable to satisfy Circuit City and its advisers that Blockbuster’s proposal could be financed," Circuit City said in an April statement.

Presuming Blockbuster does indeed secure the proper financing, Louis Basenese, a mergers and acquisitions (M&A) expert and the editor of The Takeover Trader newsletter, said the deal bodes well for both companies, but mainly because independently, they are headed for trouble.

"This is clearly a merger to fight off extinction," Basenese said. "Combining forces might only delay the inevitable."

Coincidentally, Circuit City made the announcement a day after its chief rival Best Buy Co. Inc. (BBY) announced plans to open stores in Europe through a $2.1 billion 50-50 joint venture with London-based Carphone Warehouse Group PLC.

Domestically, Best Buy has been trouncing Circuit City for the past several years. Adding to the pain, U.S. economic woes and rising inflation have dampened consumer spending.

News and Related Story Links:

• Circuit City:
  Circuit City Board of Directors Authorizes Exploration of Strategic Alternatives to Enhance Shareholder Value

• Money Morning:
  Outlook 2008: Blockbuster is the Latest Blue Chip to Lead a Resurgence in M&A Deals

• Circuit City:
  Circuit City Confirms Receipt of Unsolicited Proposal from Blockbuster

• Money Morning:
  Best Buy Plugs into Europe with $2.1 Billion Carphone Warehouse Partnership