Circuit City Inc. offers itself for sale

BLOOMBERG NEWS

Circuit City Stores Inc. put itself up for sale yesterday and opened its financial books to Blockbuster Inc. and billionaire Carl Icahn to prepare for a possible offer.

Blockbuster made an unsolicited bid of $6 to $8 a share for Circuit City in February, provided it could study the Richmond retailer’s books. That would value Circuit City at $1.35 billion, more than 50 percent higher than its market capitalization now.

Mr. Icahn said yesterday he would purchase the company, should Blockbuster fail to get financing. Circuit City hired Goldman Sachs & Co. to review its options.

“This is a significant development and makes it more likely that a deal will happen,” said Richard Hastings, an analyst with the Federation of Credit and Financial Professionals in South Plainfield, N.J.

The second-largest U.S. electronics retailer is under pressure from investor Mark Wattles to raise its stock price. Circuit City’s shares rose nearly 6 percent yesterday in New York trading.

Circuit City lost money in the past two years as Best Buy Co. and Wal-Mart Stores Inc. lured customers away. It has opened smaller stores and fired higher-paid employees to lower costs. Mr. Wattles, who owns 6.5 percent of the retailer, had sought to replace Chief Executive Officer Phil Schoonover and gain five seats on the board, arguing that management’s strategy isn’t working.

Mr. Wattles and Circuit City have agreed to include three of his nominees as part of a slate of directors to be elected at this year’s annual meeting, the retailer said.

Circuit City shares, which have plunged 85 percent over the past two years, climbed 28 cents yesterday to close at $5.07 on the New York Stock Exchange. Blockbuster stock, which has dropped 72 percent since the end of 2004, fell 2 cents yesterday to $2.66.

Mr. Icahn, who owns 16 percent of Blockbuster, first began purchasing its shares in 2004. He began a proxy fight in 2005 that led to the appointment of himself and two of his nominees to the chain’s board.

Blockbuster said yesterday it was “pleased” with Circuit City’s decision. The world’s largest movie-rental chain, which also lost money last year, has said it would combine electronics with movies and eliminate overlapping store locations.

“Consumer electronics is littered with the corpses of investors who thought they could make it in this competitive industry,” said Richard Weinhart, an analyst with BMO Capital Markets. “Combining two struggling retailers isn’t likely to produce winning results.”