RICHMOND, Va. – Circuit City Stores Inc. on Friday gave in to pressure from activist shareholders, essentially putting itself up for sale and agreeing to nominate dissident directors to its board.
The electronics retailer announced it would open its books to Blockbuster Inc. and Blockbuster’s largest shareholder, Carl Icahn. It did so after Icahn defused concerns over whether Blockbuster could finance the deal by saying he was prepared to buy the company if all else fails.
Circuit City said that Icahn’s letter answered some questions related to the potential transaction, and that it would allow the video-rental chain to conduct due diligence in its takeover bid of slightly more than $1 billion with plans for creating a huge chain that would sell electronic gadgets and rent movies and games.
Circuit City has more than 600 stores, including one in Spokane and another in Spokane Valley, according to its Web site. Blockbuster has more than 8,000 stores worldwide, including 10 in Spokane County and one in Kootenai County, according to the company’s Web site.
Friday’s moves by the Richmond-based Circuit City, including hiring Goldman Sachs & Co. to explore strategic alternatives, eased some lingering concerns over Circuit City’s financial future, helping its stock climb in trading.
Shares of Circuit City jumped 28 cents, or 5.9 percent, to $5.07, while Blockbuster’s stock fell 2 cents to $2.66.
“The board is taking its fiduciary responsibility to its shareholders seriously,” Circuit City spokesman Bill Cimino said. “These actions today, the board felt, were in the shareholders’ best interest.”
But chief executive Philip J. Schoonover cautioned about reading too much into the discussions, saying the board has “confidence in the company’s ability to successfully implement its turnaround plan.”
Blockbuster said it was pleased to reach an agreement with Circuit City. “While it is our hope that the due diligence process will reinforce both the strategic and financial rationale behind the deal, we are committed to only doing a transaction that provides substantial benefits for our shareholders,” the Dallas-based company said in a statement Friday.
While sale of the company to Blockbuster or others isn’t necessarily inevitable, Circuit City is going to have make a better case that it is still viable if it’s going to stave off pressure from shareholders, BMO Capital Markets analyst Rick Weinhart said.