Circuit City's Not Off the Hook Yet

Jan.12.09 | About: Circuit City (CCTYQ)

by Jeannette Di Louie

[Note: Circuit City (OTC: CCTYQ.PK) came up the other day in our IU Blackboard. Jeannette’s conclusion pretty much matched our own, but we were unaware of the fact it had put itself on the auction block. That news sent the stock up over 80% today, to thirty cents. The question is whether or not a white knight can do any good with the mess. And in this market, neither liquidation nor renovations seem like attractive options.]

Can Circuit City Survive?

Circuit City might be on a fast track to failure, but that doesn’t mean it’s going to go out quietly.

Even now, the nation-wide chain is in talks with two different parties interested in either buying out the stores or infusing more cash into the floundering company. It’s a nice thought, but both parties want to make sure such an investment would be sound first, which means Circuit City isn’t off the hook yet.

Ricardo Salinas Pliego should already know something about the company he has a 28% stake in, but he’s still taking his time looking into the details according to his spokesman. The Mexican retail and media mogul may or may not be one of the alleged parties, however, as Circuit City isn’t providing any details.

The fact that they have two interested parties is a good sign, but that doesn’t mean Circuit City’s salvation is by any means guaranteed. Its dire straits make it an attractive bargain, but its poor business model and the costs required to clean up the mess don’t add up.

So far, the company has both liquidated and closed 155 stores in the U.S. over the last two months. It could begin auction off remaining portions and assets as soon as Tuesday.

To see the original article, go here.