In a sign of softening up to video rental chain Blockbuster's unsolicited bid for Circuit City last month, the latter has now agreed to let the former conduct due diligence proceedings on its accounts. Sources indicate that this softening of stance by the second-largest US electronics retailer after its combative stand earlier is due in no small measure to a letter sent to it by billionaire investor Carl Celian Icahn, who also happens to be Blockbuster's largest shareholder.

Redmond-based Circuit City had earlier rejected Dallas-headquartered Blockbuster's advances citing the rental chain's probable inability to arrange financing for the billion dollar plus deal. However, with Icahn's letter stating his intention to buy the company on his own if Blockbuster should be unable to finance the deal, subject to certain conditions, the Circuit City management is more hopeful of a deal materialising.

''This written commitment answers some of [the company's] questions with regard to Blockbuster's and Mr. Icahn's previous disclosures,'' Circuit City said in a news release. This was quite a contrast to its negative comments last month when it said it had ''fundamental questions regarding the structure, sources and uses of funds'' for the proposed deal.

However, this announcement was tempered by a statement from Philip J. Schoonover, chairman, president and chief executive of Circuit City, who cautioned against reading too much into the current state of the discussions.

"Let me be clear that our decision to allow Blockbuster and Carl 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," he said in a statement.

Friday's announcement demonstrated how, in these tight credit markets, having a deep-pocketed partner, such as Icahn, or, in the case of Mars's deal to buy Wm. Wrigley Jr. Company, Warren E. Buffett,  is a valuable asset in attempting a large takeover.

Carl Icahn is estimated to be worth $14 billion at present, making him the 46th richest man in the world. He was recently in the news for suing Motorola after it prevented him from nominating four members to its board.

In his long investment career, he has taken substantial or controlling positions in various corporations including RJR Nabisco, TWA, Texaco, Phillips Petroleum, Western Union, Gulf & Western, Viacom, Uniroyal, Dan River, Marshall Field, E-II (Culligan and Samsonite), American Can, USX, Marvel Comics, Revlon, Imclone, Federal-Mogul, Fairmont Hotels, Kerr-McGee, Time Warner and Motorola.

He developed a reputation as a ruthless corporate raider after his hostile takeover of Trans World Airlines (TWA) in 1985. After the takeover, Icahn systematically stripped TWA of its assets and sold them off, resulting in its eventual bankruptcy and liquidation with it's remaining assets being acquired by American Airlines in 2001.

Circuit City said it has hired Goldman Sachs & Co. to explore ''strategic alternatives'', which may include a sale of the company, but that its board has not determined to pursue a particular option.

Shares of Circuit City gained $1.04, or nearly 12 per cent, to $5.83 in early trading. Blockbuster's stock dropped a penny to $2.67.  The latter has indicated its willingness to pay $6 for each share of Circuit City. This translates to an offer price of around $1.35 billion.

Also on Friday, Circuit City said it settled a proxy battle that had been brewing with Wattles Capital Management, an investment firm controlled by Mark J. Wattles that owns a 6.5-per cent stake in the company. It said it would include three directors chosen by Wattles in its board nominations; in exchange, Wattles Capital will not carry out its threat of trying to convince shareholders to elect five new directors for Circuit City's 12-member board and oust the others.

Wattles, owner of the 32-store Ultimate Electronics chain, has criticized Circuit City's turnaround efforts, placing blame on Schoonover and asking for him to be replaced. In a filing before the Securities and Exchange Commission last month, Wattles questioned the existing board's willingness to hold senior management accountable for poor performance at Circuit City - which lost $319.9 million in its last fiscal year, deeper than the loss of $8.3 million the previous year.