Circuit City Stores Inc.'s unlikely savior Blockbuster Inc. bowed out of a bid for the beleaguered electronics retailer on Wednesday with a statement from Blockbuster chairman and CEO Jim Keyes: "based on market conditions and the completion of our initial due diligence process, we have determined that it is not in the best interest of Blockbuster shareholders to proceed with an acquisition of Circuit City."
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"Market conditions"? These market conditions did not seem to have the same disastrous effect on Best Buy Co., the No. 1 player in an electronics retailing space where Circuit City is a far No. 1, as Best Buy recorded income of $179 million for the first quarter ended May 31 versus about $192 million for the year-ago period while Circuit City continues to bleed, logging a $164.8 million loss for the first quarter compared with a $54.8 million loss for the same period last year. It may be more than just "market conditions" that have driven down Circuit City's shares to close at $2.55 on Monday from $3.90, the closing price on April 11, the trading session before Blockbuster had announced its bid.
As Circuit City sinks even further with its stock sliding nearly 16% in early Wednesday afternoon trading to $2.15, is there any hope for another bid? Mark Wattles, the 6.5% Circuit City shareholder that has been supportive of a sale and recently landed three board seats at Circuit City, in late June told Reuters that there are other interested bidders.
And what about Carl Icahn? Blockbuster's largest shareholder, who had agreed to backstop a rights offering to finance a Blockbuster bid, later upped the stakes, saying he would outright buy the company if Circuit City was unable to finance the deal or get shareholder approval. Two sources said Icahn's involvement may have scared off other Blockbuster shareholders, fearing that if he was to backstop a deal, he would have too much leverage in the video rental company.
Can Circuit City survive on its own or does it face bankruptcy if losses continue to mount and shares continue to wane? Chapter 11 may not be a near-term concern as the retailer in the first quarter had total current assets of about $2.35 billion versus total current liabilities of roughly $1.69 billion.
But if Circuit City were facing bankruptcy, Wattles, based on his past history, might take interest. The activist investor, who is the largest shareholder in Ultimate Electronics Inc., amassed his stake shortly before its 2005 Chapter 11 filing and bought half its stores at a bankruptcy auction. - Michael Rudnick
Comments
What has changed in the "market environment" that is materially different than when the Blockheads at Blockbuster made their ridiculous proposal? Not much! The environment already was terrible. This was corporate idiocy in the extremme supported by an old senile man Icahn...RIGHT!!! Icahn is still nothing but a greenmailer and as he comes close to his own "term limits" gets more short sighted all the time. He's more of a dinosaur than Blockbuster. And Wattles? Now there is a real loser! Who the hell is he anyway? Nobody from nowhere.