Now Blockbuster/Circuit City Merger Arbs Swinging The Other Way

I have been wrong before, you know (don't act all surprised). Earlier this week both here and on CE Pro I insinuated that the spread between both Circuit City and Blockbuster's share prices indicated that investors lacked faith that a deal was forthcoming.

Today the spread inverted, with CC gaining ground and BBI declining. Is something in the offing, or is it just wishful thinking anticipation by investors that a slow day in the market will be made more exciting by an announcement after the bell?

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Is The Party Over For A Blockbuster/Circuit City Deal?

At the same time that Circuit City's share price has dramatically tanked, Blockbuster's has risen dramatically.

For those of you who don't follow these things, typically with merger announcements and rumours thereof, the target stock rises towards the putative buyout price, while the purchaser’s stock declines, in anticipation of the short-term impact of debt and suchlike on fiscal performance. This is precisely what happened when Blockbuster first announced their intentions. Now the opposite is occurring, which leads me to wonder if institutional investors either think or know that Blockbuster’s going to walk away.

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