RICHMOND, Va. (AP) - Circuit City
Stores Inc. on Friday gave in to pressure from activist shareholders,
essentially putting itself up for sale and agreeing to nominate dissident
directors to its board.
The electronics retailer announced it would open its books to Blockbuster
Inc. -- as well as Blockbuster's largest shareholder Carl Icahn. It did so after
Icahn defused concerns over whether Blockbuster could finance the deal by saying
he was prepared to buy the company if all else fails.
Circuit City said Icahn's letter answered some questions related to the
potential transaction, and that it would allow the video-rental chain to conduct
due diligence in its takeover bid of just over $1 billion with plans for
creating a huge chain that would sell electronic gadgets and rent movies and
games.
Friday's moves by the Richmond company, including hiring Goldman Sachs & Co.
to explore strategic alternatives, eased some lingering concerns over Circuit
City's financial future, helping its stock climb in trading.
Shares of Circuit City jumped 39 cents, or 8.35 percent, to $5.18 in
afternoon trading, while Blockbuster's stock fell 5 cents to $2.63.
"The board is taking its fiduciary responsibility to its shareholders
seriously," Circuit City spokesman Bill Cimino said. "These actions today, the
board felt, were in the shareholders' best interest."
But Chief Executive Philip J. Schoonover cautioned about reading too much
into the current state of the discussions, saying the board has "confidence in
the company's ability to successfully implement its turnaround plan."
In a statement Friday, Blockbuster said that it was pleased to reach a due
diligence agreement with Circuit City.
"While it is our hope that the due diligence process will reinforce both the
strategic and financial rationale behind the deal, we are committed to only
doing a transaction that provides substantial benefits for our shareholders,"
the Dallas-based company said.
While sale of the company to Blockbuster or others isn't necessarily
inevitable, Circuit City is going to have make a better case that it is still
viable and stave off pressure from shareholders, BMO Capital Markets analyst
Rick Weinhart said in an interview with The Associated Press.
"This is going to require some either bold actions by management to change
the direction of the business here shortly, or there's going to have to be some
other strategic direction," Weinhart said.
Circuit City also diffused a proxy battle with Wattles Capital Management by
agreeing to put three of its board nominees up for election at its annual
meeting in June.
"I am confident that the Circuit City board and Goldman Sachs are committed
to a process that will maximize shareholder value," Mark J. Wattles said in a
statement.
The 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.
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AP Business Writer Michelle Chapman in New York contributed to this report.
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