Circuit City Still for Sale - Who'll Buy It?

Blockbuster (BBI) offers almost a 100% premium to your current price and then complains your disclosure is inadequate, why would any other suitor step forward?

Circuit City (CC) announced:

Director James A. Marcum, 49, has been appointed vice chairman of the company. In this executive officer position, Marcum will play a key role in leading the efforts to accelerate the pace of the company's turnaround.

"The board and I selected Jim for this role because he is a highly-experienced retail turnaround executive," said Philip J. Schoonover, Circuit City's chairman, president and chief executive officer. "I believe he will be a great partner to me and the rest of the management team as we focus on ways to improve our business. Today's announcement shows that the management team remains fully committed to delivering value to shareholders in the near term through the successful execution of our turnaround plan. Meanwhile, the board continues to pursue strategic alternatives for the company that offer the best possible results for our shareholders in the long term."

Why would any other buyer come forward? What will most likely happen is whomever may want it will wait until it files bankruptcy and then pick it up on the cheap.

Let's not forget that this is the third offer in 5 years the company has scuttled. Any one of those offers would have shareholders far better off than they are today. Circuit City is just not a valuable enough asset for a potential buyer to go through the obvious hassle that would be involved in making an offer.

Now, things do get interesting if the new vice chairman is eventually placed in charge of the company, replacing current CEO Schoonover. But, until something like this happens, just sit back and watch it fall apart...

Disclosure ("none" means no position): None.

Comments

[secroot:]

recent announcements to promote the cc brand would indicate that somone is already putting in some marketing ideas and apparently has the clout to get them put into effect----do not give up on cc yet

2008 Aug 22 10:19 AM

[secroot:]

recent announcements to promote the cc brand would indicate that someone is already putting in some new marketing ideas and apparently has the clout to get them put into effect----do not give up on cc yet----may well be some more good ideas being implemented behind the scene

2008 Aug 22 10:22 AM

[whenmusicstops:]

Sounds significant...?

2008 Aug 22 01:00 PM

[mgv11:]

Funny and i thought at todays price and a 50% premium they were still getting it on the cheap

2008 Aug 22 02:15 PM

[mgv11:]

ooops 100% premium

2008 Aug 22 02:15 PM

[d_sat:]

with a brand as big as circuit city, i just think it is a short-term pain (say 1-2 years). with better management and compensation structure and with increased focus on its webiste sales, it should be up and running and be able to compete with best buy. honestly, i still prefer shopping at cc rather bb (although i rarely shop in-store). my price target is $6-7 by end of 2009. this stock is a buy in my book.

2008 Aug 22 04:00 PM

[ksmithdc:]

As a consumer (and somebody who buys a LOT of electronics), I can't honestly say I've ever done business with CC. Most of my in-store purchases are done at Best Buy. And given the nature of this article, I suspect I'm not alone.

2008 Aug 23 09:42 AM

[ddh:]

Sullivan the self described value investor thinks WalMart,Sears and Target are electronic retailers-(see his recomendations) this is as big a joke- as his commentary. And how many years experience does Mr Sullivan have in big electronci retail? More trash talk while promoting retailers that carry (electronics) obsolete merchandise, absolutely no customer service and whose experience in electronics is non-existent. The fact is Sears cannot even install the appliances they sell, and Target if you have been there recently, is now just carrying Walmart merchandise at a higher price. (the word is spreading) Is Mr Sulivan a momentum investor or a value investor?-with CC book value over $7 a share and a billion credit line- his comment regarding BK is just plain irresponsible -maybe he should go take another look at Sears- stocks he is actually promoting and maybe concentrate more on fundamentals that have something to do with "value investing".

2008 Aug 23 08:26 PM

[billddrummer:]

I'm in Mr. Sullivan's corner on this one. Book value/share looks good until you factor in the costs for terminating leases at underperforming stores, brand damage done by poor customer service over the past five years, and consistently poor fundamentals (negative FCF, shrinking cash balances, lower gross margins quarter after quarter, operating losses in the 4th quarter).

All that's left is to have vendors stop supplying product, and the swan song will commence. When the credit line is used up, CC will be done.

2008 Aug 25 10:14 AM

[kevincstms:]

Bill said it correctly. When the vendors stop delivering and the credit dries up CC is toast. I was in a CC store yesterday. It was rather scary to see a "super store" virtually empty at 12 noon on the week prior to school starting. This is a store in Orange County, Calif. that even in a recession has a lot of disposable income. The Staples store next door was packed with customers buying laptops and other expensive items. Not so at CC. I get the feeling that most folks already know that CC is close to bankruptcy and they don't want to have warranty problems if the store is not going to be around much longer. It is sad to see such a once great store chain mismanaged into oblivion. Let us all hope that whoever picks up the pieces afterwards will at least keep the name.

2008 Aug 26 12:58 PM

[billddrummer:]

To User 251231,

Thanks, I appreciate your comments. It's too bad that CC has run aground, and the execs are exchanging chairs. There's a 'superstore' near my office, and the Verizon kiosk routinely has more customers than the rest of the store.

The location of the store is terrible. It's on the back side of a mall, obscured by a Safeway, TJ Maxx and a big box shoe store. Immediately south is a WMT complex including a Sam's Club with gas pumps (it's jammed, too). Next door to CC is a Sports Authority (the third sporting goods retailer to try that spot--the others went out of business). But the lease on the CC runs for another 12 years, or something ridiculous. Termination costs would be immense.

I think that's what's happening all over the chain. Poor locations, bad lease terms, low store traffic, poor service.

And Schoonover still has a job. Amazing.

2008 Aug 26 04:32 PM

[phil'spal:]

Sullivan is right. Too much hassle involved with making an offer. Further, there is even more hassle in trying to make something of it once you have it. That leads to the obvious question: "What's left of any value in this company?" Bill is right. Fundamentals stink. Land and lease costs are crushing them, yet they're still talking about opening new stores. Not a logical strategy when the only bright spot in the story seems to be that their website is getting more hits lately. Trying to build market share by spreading yourself thinner is an interesting strategy. Given the pathetic performance over the last several quarters, does anybody know how they're planning to pay their suppliers? More debt? So much for cutting costs, unless interest expense somehow doesnt count. Or is the escape plan already in place where the creditors take the thrashing? It's the worst company in a tough, highly competitive market in a scary economy. With regrets to the few dozen or so remaining loyal customers and irrepresibly optimistic CC investors, there is no redeeming aspect that makes this company appear to be worth salvaging. If Mr. Marcum can turn this one around, he should be knighted, sainted, worshipped and adored for time eternal. But I kinda think that he'll settle for the few million bucks he gets for trying.

2008 Aug 27 02:52 PM

[lilarwin:]

Mr.Sullivan, Blockbuster's offer was just the manuplated offer with the help of some moneylaunders and scoundrels in the bootleggars society.If it had come through that would had been the worst moment not in the history of CC but inthe whole American business community.CC is the pioneer co in the retail market (sply in the electronic goods) and has done lot of contribution to the growth and development of the society,given very high returns to the shareholders and I am sure CC will definately come out with good results.Mr.Marcum will have' kick in the back and carrot in front, policy and drive out many inefficient,fat salaried,mentally disabled staff members,close down non profit making outlets and inject heavy dose of insulin in lost energy personnel.and implement the comtemporary business practices like having association with Financial corporations dealing in Credt cards,Insurance and Banking business where CC can hold on their money (Strength of 37000 emplyees,$12 Bn sales and assets and stocks,share holdings worth ** is not a small figure)This is enough Mr.Marcum and go ahead and hit the target.

2008 Aug 27 05:00 PM

[lilarwin:]

Mr. Bhaskar's comments are rough and tough but has hidden truth that three M's will work in any successful company and the first M ie Men is the missing factor in CC when other two Ms like machines (product with quality) and Market demand are upto the mark.Mr Marcum.should have also noticed this factor..

2008 Aug 28 03:25 PM

[lilarwin:]

mmmmzzzmzm

2008 Aug 28 03:27 PM

[lilarwin:]

Mr.Bhaskar's comments are rough and tough but it is true that any organisation to become a successful one has to have three Ms on the top.and that is the first M ( Men working in the organisation) is misssing in CC with other two Ms ie machine ( quality product) and market (demand )are upto the highest leval.Mr Marcum should have noted this point.

2008 Aug 28 03:37 PM

[billddrummer:]

I still think that it's too late to engineer a turnaround. The only value I see in the business is its breakup value if some of the stores are in good locations. Then, there's value in the underlying leases. As we've noted previously, the company leases all but 5 of its stores.

If shrinking and refocusing to cater to upper income shoppers is part of the turnaround strategy, it may work. (Make 'The City' the new brand, and close the subpar superstores that are draining the company's balance sheet.) Unfortunately, if CC does that, it will probably face higher prices from its major suppliers, because it won't need the same inventory level it does now. Which will further shrink its gross margin.

If Mr. Marcum is tough enough to make the decisions to close underperforming stores, then the company won't have to sell to a hedge fund to accomplish it. On the other hand, if it's business as usual, forget any return on investment unless you get a breakup fee for your trouble.

2008 Aug 28 08:06 PM

[billddrummer:]

A source I use for consumer electronics research has found that the manufacturers still support CC and its struggles, primarily because it's a national chain. If CC were to be dissolved or shrink significantly, vendors would have fewer doors to sell through.

Check out this link for more:

www.twice.com/article/...

It's true that competition gives consumers more choices. But it's also true that consumers vote with their feet and their wallets. It seems to me that the votes have been cast, and CC lost the election.

2008 Sep 04 06:43 PM

[billddrummer:]

As expected, Schoonover is gone and Marcum replaced him. Let's see what he'll do to 'unlock shareholder value.'

2008 Sep 22 07:20 PM

[User 391757:]

I must admit that this is just like when Silo went out of busines back in the late 80's. Every one is making a big deal out of it.
The thing is that they made a huge profit durring the time that they were open. The only loss that you see is the loss for a 3 month time period. Every one still got paid. The company owns alot of property. Let them flush it down the drain, and let another electronic copmpany get to the top.

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Apr 08 11:04 PM