Circuit City Finally Admits It's Failing; Opens Books to Blockbuster

Circuit City (CC) CEO Phil "The Shill" Schoonover must be looking at sales numbers for the current quarter.

Schoonover has finally decided to open the books for Blockbuster (BBI) and billionaire Carl Icahn. A new letter to Blockbuster that was given to Circuit City from Icahn states that, "subject to him being satisfied with his due diligence review of Circuit City to be conducted concurrently with Blockbuster, Mr. Icahn and/or entities affiliated with him stand ready to purchase Circuit City if Blockbuster were unable to receive financing or required shareholder approval to do so after satisfactory due diligence, and assuming that required regulatory approvals are obtained."

In an April 24th letter to Schoonover, Blockbuster CEO Jim Keyes said, "We need to bring closure to this process. If we have not been provided the opportunity to begin due diligence by the close of business on April 28, 2008, we plan to announce that we are withdrawing our proposal to acquire Circuit City in light of your refusal to provide us access despite repeated efforts on our part to satisfy your concerns."

Schoonover, at least smart enough to know this was his only option, relented.

Said Schoonover, "While the Circuit City board has confidence in the company's ability to successfully implement its turnaround plan and generate shareholder value, we believe that we can best serve the interests of our shareholders by exploring all possible alternatives to enhance shareholder value. Let me be clear that our decision to allow Blockbuster and Carl Icahn to conduct due diligence should not be taken as an indication that the board has completed its review of the Blockbuster proposal, that the board has taken a position on the company's value or that it has settled upon a particular strategic course of action."

Translation? CC is in trouble and a purchase by either Blockbuster or Icahn are the only thing out there now that will save them and shareholders from destruction.

CC has been looking into a sale for quit some time now. Back in March I posted that they had retained Goldman Sachs (GS) as an "adviser" and speculated it was for a sale. It appears it was.

So, should we go buy shares anticipating a sale? No. There is no guarantee that CC management will be reasonable and get a deal done, and Icahn, who is smarter than Schoonover in his sleep, will not pay more than he wants for the company.

Disclosure: Long GS, no positions in other stocks mentioned herein

Comments

[billddrummer]

It's amazing that the board of directors is still dragging their feet on what to do about ex-CEO Schoonover.

The existing stockholders are probably wondering what happened to that $21/share offer that was rebuffed only 3 years ago. Carl Icahn is no dummy, even though I get the sense that the GS advisory role may have had something to do with Inter/Tan, the Canadian subsidiary. $771,000/store revenue division that's been on and off the auction block for at least 2 years. If Icahn makes a serious bid, don't be surprised if it includes selling the Canadian subsidiary to raise cash to finance it. And any new debt arising from the deal would be junk rated, of course. The company isn't generated any free cash flow from operations, there's no undervalued real estate of any consequence, and morale is dismal.

The clock is ticking. Time for Schoonover to clean out his office.

[bill d]

De ja vu all over again - MSFT/YHOO ???