Investor Mark Wattles, who holds a 6.5% stake in Circuit City (CC), wants to see the beleaguered electronics store chain sold as soon as possible. What's more, according to Wattles, there's more than one interested party that has emerged as a potential bidder. "You will see an announcement within four weeks," he says. The big question: Will the troubled company fetch any sort of respectable price?
Wall Street certainly doesn't think so: Circuit City's shares sit at $3.35—a 52-week low. And Wattles, who paid between $4 and $30 per share for his 11 million-share stake, will almost certainly not reap large gains. But Wattles is an activist, determined shareholder who on June 24 succeeded at installing three of his five nominees on Circuit City's board. The three directors are Elliott Wahle, a former executive at Toys 'R' Us; Don Kornstein, interim chairman of Bally Total Fitness; and James Marcum, who has worked at retailers like Hollywood Entertainment, which Wattles helped to found in the 1980s. Circuit City will now have 15 directors.
"My nominees will ensure that the company completes the sale at the highest possible price," Wattles said in a telephone interview after the company's annual meeting in Richmond, Va. He says he has talked with those in the negotiations process, and that it has been narrowed down to a list of three possible bidders—Blockbuster (BBI) and at least two private equity firms. Wattles wouldn't provide any names.
No Timetable YetCircuit City, which has hired investment bank Goldman Sachs (GS) to explore a sale, will not comment on any specifics of the negotiations. "There's been no timetable established, and nothing has been set," Circuit City spokesman Bill Cimino says. So far, only Dallas-based video rental chain Blockbuster, with the backing of billionaire investor Carl Icahn, has publicly offered to buy Circuit City. In April, Blockbuster offered $6 a share; the bid was greeted with deep skepticism and prompted Icahn to state his personal financial backing for any final offer. Blockbuster is now "conducting due diligence, which will help us determine if we will make a formal offer and at what price," spokeswoman Karen Raskopf says.
In recent weeks, Circuit City has increasingly lost battles with strident shareholders. After first ignoring Wattles' nomination of board members, Circuit City finally capitulated (BusinessWeek.com, 5/9/08). The electronics chain also initially disregarded Blockbuster's takeover offer and attempts to peer into its books. However, the company came under intense pressure from Wattles and HBK Investments, which is Circuit City's largest shareholder, with a 9% stake. HBK sent a letter to Circuit City Chief Executive Philip Schoonover urging him to allow Blockbuster to examine its finances. Within two weeks, Circuit City opened its books to Blockbuster and hired Goldman to explore alternatives.
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