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Circuit City Fielding Unsolicited Takeover Bid

15 Feb, 2005 By: Holly J. Wagner

Circuit City Stores is fielding an unsolicited $3.25 billion takeover bid from Highfields Capital Management. The deal would value Circuit City's shares at $17 cash per share.

Circuit City has struggled in recent months with merchandising and management missteps. The chain has reported declining same-store sales in recent quarters, most recently citing a “more promotional environment” in the form of pricing the chain has been loathe to match.

“Though some steps have been taken to address the company's operating performance and suboptimal capital structure, we are nevertheless disappointed that management has been unable to move more aggressively … we attribute this partially to the demands and scrutiny that come with being a public company (i.e., emphasis on monthly sales, quarterly earnings and other short-term targets) and partially to the company's historical inability to react to the increasing competitive nature of the business,” Highfields representatives said in a letter that Circuit City made public.

Highfields, which already owns a 6.7 percent stake in the chain, suggested in the letter that taking the company private would give it a better chance to recover.

Circuit City's board of directors will evaluate the Highfields' proposal and other alternatives, taking into account the potential benefits of strategic, operational and financial initiatives that are under way and the risks associated with them, according to a company statement. The company retained Goldman, Sachs & Co. to help with the board's evaluation.

“While the Board evaluates the Highfields proposal with the help of outside advisers, we on the Circuit City management team, as well as our more than 40,000 associates across North America, must and will focus on continuing to meet the needs of our customers and business partners, continuing to implement steps aimed at improving our strategic, operational and financial performance and, in turn, achieving our No. 1 goal: building value for our shareholders," said Circuit City chairman and CEO W. Alan McCollough.

Circuit City stock closed up $2.30 Tuesday, to $16.53 per share, following the announcement.

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