Game over for Circuit City
After five quarters of declining sales, Richmond, Virginia-based retailer Circuit City (CC) announced that it had retained Goldman Sachs to “explore strategic alternatives to enhance shareholder value,” following agreement with Blockbuster (BB) to permit due diligence with an eye to acquisition.
BB had previously offered to acquire CC for at least $6.00 per share in cash, subject to due diligence. CC requested information on BB’s ability to finance the offer. In reply, BB attached a letter from its largest shareholder, Carl Icahn, stating that if BB could not proceed, he was ready to purchase CC on behalf of his own investors.
CC also announced an agreement with shareholder Wattles Capital Management regarding board representation, to avert a proxy battle. Mark Wattles, owner of the 32-store Ultimate Electronics chain, had expressed his intention of unseating the whole CC board prior to selling the company.
No other buyer has emerged, and Wall Street is dubious about the deal. “Will the combination of two crippled companies end up crippling both even further?” pondered Burt Flickinger III, MD of the New York retail consultancy Strategic Resource Group.
Following the announcement last week that US industry leader Best Buy is diversifying overseas through a £1.1 billion investment in Carphone Warehouse, it is intriguing that BB, which already has a strong European presence, should consider increasing its exposure in a market hammered by discounters like Wal-Mart and Costco Wholesale.
In the light of the “mess the electronics business is in,” said Howard Davidowitz, chairman of New York retail consultancy and investment bankers Davidowitz & Associates, “it’s like buying a sinking Titanic.”
CC’s stock rose ten percent after Icahn’s interest became known, but despite lower-than-expected losses for 2007 under the new leadership (since July) of CEO Jim Keyes, BB’s shares have fallen 5.3 percent since making its takeover bid public a month ago.
Further reading - Opinion: The Yanks are coming
