Circuit City Stores Inc., which lost its perch as the nation's top electronics retailer nearly a decade ago and has struggled to compete since, yesterday said it received a takeover bid that could end local management of the 56-year-old Richmond company.
Highfields Capital Management LP, a Boston hedge fund that controls about 8 percent of Circuit City's stock, offered $3.3 billion for the chain. In a letter to Circuit City's chief executive, the fund's managers said they hoped to take the company private.
The struggling consumer electronics chain got its start when Samuel S. Wurtzel opened a TV store in Richmond in 1949.
(Michael Nagle -- Bloomberg News)
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Tough Competition Circuit City's share of the highly fragmented consumer electronics market has dropped while Best Buy's continues to gain
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Circuit City, in a written statement, said its board would "carefully evaluate" the proposal. The announcement of the $17-a-share bid boosted Circuit City's shares by $2.30, or 16 percent, to $16.53.
Amy Glynn, an analyst at Standard & Poor's, predicted Circuit City would accept the offer, which represents a 20 percent premium over the chain's closing price Monday. "Frankly, Circuit City is broken and its needs to be fixed," she said.
But Mitchell A. Kaiser, an analyst at Piper Jaffray & Co., called the asking price "too low" and thinks Circuit City's executives will try to turn around the company's finances on their own.
Circuit City, the nation's third-largest seller of consumer electronics behind Best Buy Co. and Wal-Mart Stores Inc., is in the middle of a four-year-old revitalization campaign started by chief executive W. Alan McCollough, who took over in 2000.
With the 630-store chain quickly losing ground to rivals with bigger stores, better locations and a wider variety of merchandise, McCollough tried to reinvent the Circuit City brand. He ditched the chain's poorly performing appliance business, added space for CDs, DVDs and video games, and relocated stores to newer shopping centers.
To cut costs, the company eliminated employee commissions at its stores in 2003, laying off nearly 4,000 commissioned salespeople (many were later rehired) and adopting an hourly wage system like the one used by Best Buy. It was a period of wrenching change for the company that Samuel S. Wurtzel, a New York businessman, created in 1949 to sell TV sets to Richmond residents.
But the results have proved lackluster. For the fiscal year ended in February 2004, Circuit City's sales fell 2 percent, to $9.75 billion, and it posted a loss of $89.3 million -- even as overall U.S. electronics sales rose 2 percent, according to the Consumer Electronics Association, a trade group.
One explanation for the sales slump: Circuit City's smaller and less well-stocked stores have failed to keep pace with consumer tastes. Electronics vendor Best Buy's approximately 660 U.S. stores are crammed at the front with row after row of entertainment software -- a more frequent and affordable purchase than flat-screen plasma TVs and surround-sound stereo systems. Circuit City is expanding such offerings, but it faces a space crunch. Its average stores are about 10,000 square feet smaller than Best Buy's.
