Ever since Circuit City Stores (NYSE: CC) CEO Philip J. Schoonover sliced 3,400 sales people in March 2007 to save money, I have questioned the savvy of its management. That's because many of those fired sales people took their customers over to Best Buy (NYSE: BBY). As its stock lost 86% of its value, I was surprised that anyone would make a bid for it.
Yet Blockbuster (NYSE: BBI), the struggling video store chain, decided to buy. I don't know what got into Blockbuster's head to make it think that combining two struggling companies would make an agile competitor. The Richmond Times reports that it wanted to create a one-stop shop for movies, games, and electronic equipment. But that dream died when Blockbuster pulled its $1.3 billion offer after reviewing Circuit City's books.
Carl Icahn has said he would buy Circuit City. But it's losing money -- $164.8 million, or $1 a share, in its fiscal first quarter. This was $100 million more than its Q1 2007 loss. And Blockbuster's conclusion after a closer look at its financial statements does not bode well for Circuit City's future. Circuit City stock is down 7.8% in pre-market. Let's see whether any new bidders emerge.
Circuit City Stores, Inc. (NYSE: CC) is sitting on the brink of a buyout. The question is who, and how much. The deal with Blockbuster Inc. (NYSE: BBI) is still very possible, but investor Mark Wattles of Wattles Capital Management has said to expect a deal within four weeks regardless. With Circuit City shares nearly the bottom -- closing yesterday at $4.35 -- some entity needs to swoop in and just offer cash for the company. As in, now.
It's a foregone conclusion that Circuit City can't compete with other national consumer electronics retailers. The access to its prime real estate locations would be a main reason for the chain to be bought up at such a fire sale price. Wattles said Blockbuster and two unnamed private equity firms are most likely the three finalists ready to step up and purchase Circuit City.
While all this "due diligence" is going on for buying a retailer at such a low price, shareholders are getting antsy with good reason. It's hard to imagine any shareholder making out on Circuit City stock -- including Wattles who stands to lose a good chunk of change unless the shares rebound. Circuit City's largest investor, HBK Investments (a 9% stake), probably needs to have a deal done as soon as possible with a sweet premium to the current share price. Who could blame them?
Regardless of who buys Circuit City, this is a company that needs to return shareholder equity back to its shareholders and just fold up and go away. It's not going to get any better.
Some companies get it, some don't. Circuit City Stores, Inc. (NYSE: CC) has been in the camp of companies that don't get it. That may have finally changed today.
The company appears to have finally capitulated and realized its days under its own efforts may be limited. There are two separate announcements this morning, but in reality it is all part of the same issue.
This will allow the company to deal with the activist pressure, and may ultimately lead to the company either being run by a better team or become a subsidiary of another company. The company just issued a release that it has reached an agreement with Wattles Capital Management.
As an investor, I wouldn't want to get any closer to Blockbuster's (NYSE: BBI) patently stupid effort to buy Circuit City (NYSE: CC) than I have to.
But HBK Investments-- which owns 9% of Circuit City and 8 percent of the class A stock of Blockbuster and 5 percent of the company's class B stock -- has filed a 13-D on the matter, attaching a letter urging Circuit City to give Blockbuster access to the material it needs to perform due diligence. HBK added that If Blockbuster withdraws its offer because of a lack of cooperation by Circuit City's Board, we believe Circuit City shareholders will be immediately and substantially damaged."
The fund also added that it might be able to provide financing for the deal, and expressed its confidence in the prospects for a combined company: "We believe that over $300 million per year in increased EBITDA could be realized following an acquisition by maximizing cost savings between Circuit City and Blockbuster."
That's a pretty impressive suggestion, and one that flies in the face of what many analysts have said about the proposed deal. But HBK didn't grow to around $14 billion in assets with stupid decisions, so maybe they're onto something.
It is the kind of deal that investment bankers trying to save their jobs and desperate CEOs might dream up. Blockbuster (NYSE:BBI) has proposed to buy Circuit City (NYSE:CC) for $6 to $8 based on due diligence.
According to The Wall Street Journal "Blockbuster said the combination of the two companies would result in an $18 billion global retail enterprise uniquely positioned to capitalize on the growing convergence of media content and electronic devices." The weakness in the argument is that neither company is growing at all.
Over the last three years, Blockbuster's revenue has been flat to down. Competition from online DVD sales companies lead by NetFlix (NASDAQ:NFLX) has robbed the large retailers of customers. VOD over the internet and though cable are further eroding the company's business. Its shares are at just over $3, down from a 52-week high of $6.67.
Electronic retailing outhouse Circuit City (NYSE: CC) has lost more than 80% of its value over the last few years, and now lead director Mikael Salovaara has decided (subscription required) that he will condescend to meet with the head of Wattles Capital Management LLC, which owns 6.5% of the company's stock.
What a nice guy! This company's board of directors has presided over a pretty amazing destruction of shareholder value while rivals like Best Buy (NASDAQ: BBY) have prospered, and he's willing to take time out of his busily destructive day to meet with a major shareholder.
Mr. Salovaara said in a letter filed with the SEC that the company's nominating committee would not meet with Wattles' nominees for the board of directors, given that Wattles had conditioned the meeting on the company's agreement to support his nominees. That seems like an unreasonable request -- why should there be special conditions for a conversation? -- and Mr. Salovaara wrote that "I trust that we can resolve this point in a personal conversation."
This matter appears destined for a proxy fight, and you have to like Wattles' chances. Given the company's performance in recent years, most shareholders would probably support change of any kind.
Combine a beaten-down stock price, a once-strong brand and a failed turnaround with the exit of some of the company's biggest shareholders, and you have a situation sure to attract the interest of some activist investors.
Major shareholders Wellington Management Co., TCW Group Inc., and Maverick Capital Ltd. have all disposed of large stakes in Circuit City (NYSE: CC) recently, likely contributing to the rapid decline in the share price.
These holders have been replaced by less passive investors, including D.E. Shaw & Co, HBK Investments, and Wattles Capital Management. All three firms have a track record of sparring with management/boards of directors for control of companies, and Wattles has already nominated five people to the company's board of directors.
The company told The Wall Street Journalthat (subscription required) it believes it has "a good, strong, diverse and independent board." But given that the share price has lost more than 6/7th of its value over the past few years, you have to shudder to think about what might have happened if the board wasn't so wonderful. Either that, or you have to question Circuit City's defense of its board.
Given that the activists control a significant stake in the company and the company's poor track record, it will be difficult for the company to resist change in the boardroom/executive suite. Whether change will be enough to resuscitate this increasingly irrelevant brand remains to be seen.
Circuit City Inc. (NYSE: CC) is nothing short of a tech retail disaster. The company can't even blame a weak US-consumer because its woes have been ongoing.
The poor technology and entertainment retailer said it is considering details of a proposal from 6.5% shareholder Wattles Capital Management that was made earlier this week. Wattles is seeking to basically replace the entire composition of the 12 member Board of Directors. Wattles has its own nominees.
Among the members of the board is CEO, President, and Chairman Phillip Schoonover. Wattles must agree with us that Schoonover needs quick removal, and he is one of our "10 CEO's To GO" since he has done such a poor job. About the only thing Schoonover hasn't done wrong is set up a money changing store inside where he pays $1.25 in pennies for each paper $1.00-bill because he thinks the base metals prices are too high.
The hardest part of this activist investor strategy is that this board is pretty entrenched. It also has noted that it is experienced and committed to building shareholder value in the turnaround plan, although you can see how well all of their experience has helped the stock performance.
The 2008 Annual Meeting is currently set at June 24, 2008 and we will eagerly await the Board and shareholder's (hopefully intelligent) decision. Circuit City shares are only up 1% at $4.58 in a weak market today and the 52-week trading range is $3.47 to $19.60.
Investor Mark. J. Wattles of Wattles Capital Management has filed plans with the SEC to nominate a slate of five directors to the board of struggling electronics retailer Circuit City (NYSE: CC).
The nominees include Elliott Wahle, Don R. Kornstein, James A. Marcum, Anthony Bergamo, and Alexander M. Bond and, reading the materials submitted by Wattles, these men appear to posses strong retail and operational backgrounds.
In a 13-D filed on January 9, Wattles disclosed a 6.5% stake in the company. Wattles is the founder of Hollywood Entertainment, which pulled off quite a coup when it sold itself to Movie Gallery for $1.2 billion in 2005. The combined company is now in bankruptcy.
According (subscription required) to the Wall Street Journal, "In a telephone interview, Mr. Wattles said he nominated the slate after being rebuffed in recent attempts to meet with Circuit City executives, whom he criticized for worsening the company's financial picture."
It's hard to understand why Circuit City wasn't interested in meeting with Mr. Wattles -- who has a track record much more impressive than Circuit City's. Wattles also owns Ultimate Electronics, but told the Journal that he isn't interested in combining the two companies.
When Mark Wattles stepped up his holdings in consumer electronics retailer Circuit City Stores, Inc. (NYSE: CC) last week, shares in the retailer jumped over 33% to $5.04 Tuesday-Wednesday last week. Circuit City's share price has settled back down the $4.80 range today -- still a gain of over 25% from a week ago close of $3.76. The retailer still is not worth that amount with the current leadership in place.
Circuit City is now valued at just over $800 million, which puts the company in prime shape for acquisition. One must ask, though, why private equity was not interested a week ago when the company's market cap was valued under $600 million? That's a little over half a billion for the second-largest consumer electronics chain in the U.S. Apparently, not a single entity besides Wattles sees any value here.
Wattles did say that he is considering an outright purchase of the company or a forced leadership change now that he has amassed over 6% of the company's shares. Something -- anything -- needs to shake up Circuit City back into profit reality soon. No other money has come calling, so it may be Wattles's sole call to make. If you're holding on to your CC shares -- and you haven't sold them on fear -- you may soon be rewarded. That is, if you haven't taken profits from the company's wild increase last week.
Circuit City Stores, Inc. (NYSE: CC) may have a party interested in finally turning it around. Ultimate Electronics owner Mark Wattles has added to his holdings in the troubled consumer electronics retailer to the tune of 11 million shares. He's been acquiring the shares since late last year and now owns 6.5% of the retailer. Best Buy, Inc. (NYSE: BBY) desperately needs a solid competitor, and maybe Wattles is the right person to give it one.
Wattles, who serves as Ultimate Electronics's CEO after taking control in a 2005 bankruptcy auction, has publicly indicated that he wants to expand Ultimate's store count. How better than to grab a national chain with plenty of locations at a fire sale price? Right now, Circuit City shares are sitting at $4.83, down from its 52-week high of over $22. Is Circuit City being primed for a buyout? If not, it may go further down the tubes soon unless it completely re-invents itself.
Is Circuit City Stores (NYSE: CC) sending signals that it wants to be acquired? The consumer electronics retailer has posted two dismal quarters recently as well as sending mixed signals on how it plans on handling employee headcount. The retailer's admission that it wants to get rid of 3,400 employees (and re-hire some back as significantly lower pay) and losing a few hundred store managers to attrition while adding new stores sounds like a hodge-podge of confusion to me.
Meanwhile, Best Buy (NYSE: BBY) is wiping its feet on the doormats of Circuit City stores nationwide and the retailer must do something. Even though Best Buy and Circuit City sell essentially the same products, the merchandising and retail finesse Best Buy continues to demonstrate is not being echoed by Circuit City, which blames drastic price reductions in flat-panel televisions as a main driver for quarterly losses as of late. Best Buy? Not so much -- it's making a profit.
With Circuit City shares sitting at the $15.88 mark as I write this, is the consumer electronics retailer ripe for a buyout or acquisition? An acquisition does not make sense, but taking the company off the market just might. As you may recall, Circuit City rebuffed an offer in 2005 from a Boston hedge fund at $17 per share -- and now it's below that and probably not going to rise above $20 anytime soon. With a single share of CC being cheaper than a DVD in one of its stores, would a private equity outfit want to make an offer so that shutting down some stores and renovating others in higher-volume areas could be accelerated? Now may be the time.
There's no doubt in my mind that Circuit City is one sick puppy. The biggest problem I see is that the recent cost-cutting program has ousted salespeople who bring in the customers. And the comments on my posts provide concrete evidence of this dynamic in action.
But at $15.53, CC is valued below the $17-per-share buyout offer that Circuit City rejected in 2005 from Boston hedge fund Highfields Capital. Although some analysts think CC is worth $22 to $24 a share, its April 30 profit warning -- that its loss would rise from about $50 million to $100 million -- makes that price target harder to hit.
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Ever since Circuit City Stores (NYSE: CC) CEO Philip J. Schoonover sliced 3,400 sales people in March 2007 to save money, I have questioned the savvy of its management. That's because many of those fired sales people took their customers over to Best Buy (NYSE: BBY). As its stock lost 86% of its value, I was surprised that anyone would make a bid for it.
When Mark Wattles 
