Circuit City Gets $3.25-Billion Offer
Circuit City Stores Inc., which has lost market share to Best Buy Co. and continues to report disappointing sales, received a $3.25-billion cash buyout offer from a Boston investment firm known for rattling management at underperforming companies.
The nation’s No. 2 chain of consumer electronics stores said Tuesday that its board of directors would “carefully evaluate” the unsolicited offer from shareholder Highfields Capital Management, which contends that it has a plan for reversing Circuit City’s fortunes.
“We are convinced that as a private company, Circuit City will be able to effect change more rapidly with fewer constraints,” Highfields fund managers Jonathon S. Jacobson and Richard L. Grubman wrote in a letter Friday to W. Alan McCollough, Circuit City’s chief executive.
Also Tuesday, Circuit City announced that Philip J. Schoonover, who spent about a decade at Best Buy before joining Circuit City last fall as chief merchandising officer, was named president of the company. McCollough, who previously held that title, will continue to serve as chairman and CEO.
Shares of Richmond, Va.-based Circuit City soared $2.30, or 16.2%, to $16.53 on the New York Stock Exchange. The stock, which fell to as low as $10.18 in the last year, traded above $40 a share in 2000.
Highfields’ offer of $17 a share was a premium of almost 20% over Circuit City’s closing price of $14.23 on Monday.
The hedge fund earlier won a reputation as a battler during its public confrontations with top managers at several firms, including Janus Capital Group Inc. and Reynolds Metals Co., which was acquired by Alcoa Inc. And in 2001, then-Enron Corp. CEO Jeffrey K. Skilling famously used an unprintable name to refer to Grubman after the fund manager complained about the company’s inability to produce a balance sheet.
Grubman was previously a general partner of Corporate Value Partners. Jacobson worked at Harvard University until 1998, helping to manage its endowment. When he left, he brought about $500 million of that business with him to Highfields, a Harvard spokesman said.
The private investment firm manages $6.5 billion in U.S. and international hedge funds. Regulatory filings show that its 15.3 million Circuit City shares were its fifth-largest holding by market value as of Monday. The largest is a $545.6-million stake in Lagardere, a media company based in Paris.
With little debt and more than $750 million in cash, Circuit City has been considered ripe for takeover. The company turned down a bid of $8 a share from Mexican tycoon Carlos Slim in June 2003.
Lehman Bros. analyst Alan M. Rifkin noted that the retailer announced Slim’s offer only after its board had flatly rejected it. This time, the company issued a public statement before reaching a decision on Highfields’ bid, which “leads us to believe the board is taking this offer much more seriously,” Rifkin wrote in a report.
About a decade ago, Circuit City was the nation’s largest chain of consumer electronics stores. But Richfield, Minn.-based Best Buy, with prime locations and a sharp focus, overtook the retailer in the mid-1990s.
