Will Ultimate Electronics' Wattles Get Circuit City?
Part 1 of a series. (See Part 2, "How Mark Wattles Fixes Broken Retailers.")
Mark Wattles, the dissident Circuit City shareholder, has gotten almost everything he wanted from management to date. With a $200 million "blank check" stock offering in registration, a track record turning around Hollywood Video and Ultimate Electronics, and three new allies on the board, Wattles told Reuters Tuesday, " I am very confident that we will be seeing who the buyer of Circuit City is in the next three or four weeks and what the price is."
He says three companies are in due diligence but declined to name them. Will the successful bid come from Blockbuster (which offered $1 billion in April) or Wattles himself? I'm betting the latter.
In May, the day after Circuit City agreed to approve three of Wattles' five board candidates, Wattles told This Week in Consumer Electronics' Alan Wolf that "the buyer will likely be a private equity firm with deep-enough pockets to take the company private. ... He has had numerous meetings with Circuit City's board and financial advisor, Goldman Sachs, in recent days, and that the company's change of heart came after the directors were convinced that shareholder dissatisfaction was rampant. 'Once our discussions began, things moved very rapidly,' he said."
Circuit City hasn't garnered much love recently, as sales and stock prices fall. "When I look at Circuit City, I'm more disturbed by their executive's cluelessness and lack of candor, than I am by the financial results themselves," Markham Lee notes at Seeking Alpha. With a first-quarter loss of $164.8 million and comps down 11 percent in the three months ended May 31, that's saying something.
Adds Lee: "Despite a tough retail environment, electronics sales continue to be a bright spot for many of Circuit City's competitors, i.e. there is no excuse for not being able to make money selling electronics right now."
Seeking Alpha blogger Eric Savitz says Stern Agee analyst Arvind Bhatia gives 20-to-1 odds that Blockbuster will go through with the deal at its original offer of $6 a share.
After Salt Lake City-based Wattles Capital Management accumulated a 6.5 percent stake in Circuit City, Wattles lobbied shareholders to vote for five independent directors and joined Carl Icahn to promote Blockbuster's takeover bid. In March, according to Jane Hoback in the Rocky Mountain News, "Circuit City basically told him to take a hike ... because his requests are 'disproportionate to his relative ownership of the company's shares.'"
Once Circuit City and Goldman Sachs saw the proxy fight handwriting on the wall, they agreed to nominate three of Wattles' five candidates to an expanded 15-member board, which now includes James A. Marcum of Tri-Artisan Capital Partners; Elliott Wahle, CEO of Rustique Home Furnishings; and Don R. Kornstein of Alpine Advisors.
Phillip Schoonover, Circuit City's CEO and the architect of such missteps as firing experienced salespeople to cut salary costs, asked shareholders to be patient, acknowledging "some missteps in execution."
But Wattles remains optimistic. "I've seen that this type of business can be turned around, and Circuit City has a great brand and has a lot of upside opportunity to get the right management team in place, and this company can make a lot of money," Wattles told CNBC in March.
Part 1 of a series. (See Part 2, "How Mark Wattles Fixes Broken Retailers.")
Image: High-definition displays by Jason Swihart, CC 2.2 via Flickr