Circuit City juggles offers amid poor first-quarter results

RICHMOND, VA —One of the largest shareholders for Circuit City said three companies are now looking at a possible purchase of the chain and that a decision should be made by the end of July.

Wattles made the disclosure following Circuit City’s annual meeting on June 24. He told a reporter for the Associated Press that three companies—Blockbuster and two private equity firms—are nearing completion of their due diligence (he declined to identify the private equity firms).

Circuit City executives did not comment on the statements made by Wattles, whose investment firm owns a 6.5% share of the chain. To date, Blockbuster is the only company that’s made its pursuit of Circuit City public and has offered an estimated $1.3 billion for the company.

But that deal has come into question since Circuit City reported a $164.8 million loss for its quarter ended May 31, and an 11.3% decline in same-store sales. Circuit City’s stock price also has been falling, dropping by $1 in the first quarter alone.

Pacific Crest Securities analyst Andy Hargreaves said Blockbuster isn’t likely to match its original offer, estimated at $6 per share, given Circuit City’s poor first-quarter financials. Healso wonders just how involved the other parties are in their pursuit of an acquisition, as Wattles implied.

“[Wattles] is a large investor, so you have to take his comments with a grain of salt,” said Hargreaves. “It’s hard to know what the reality is at this point.” Wattles has been a chief proponent of a merger since he acquired a larger stake in Circuit City several months ago.

Another analyst with the Dallas firm Sterne, Agee & Leach suggested Blockbuster would offer about $4 to $5 per share for Circuit City, bringing the total price well below $1 billion.

Whoever buys Circuit City is likely to make some major changes to the business model, given its inability to compete on price or selection with Best Buy, which reported a 3.7% increase in same-store sales and $179 million in earnings for its first quarter.

“It could be a viable business if they get someone in there to re-focus,” said analyst George Whalin. “The stores have too many categories and too little selection. They can’t be all things to all people.”

At the fairly uneventful annual meeting, Circuit City ceo Philip Schoonover did not provide an update on Blockbuster’s pursuit of a merger and said there’s no timeline for action on the deal. He also said the chain is in “a good industry, despite headwinds in the economy.”