Mark Wattles, who led the effort to get Circuit City to consider alternative strategies, including a buyout, believes the chain could be sold to one of several bidders within the next two to three months.
In an interview with TWICE, the Ultimate Electronics owner said that multiple parties may be interested in the ailing CE chain, and that the buyer will likely be a private equity firm with deep-enough pockets to take the company private.
“There’s a ton of capital out there in the private equity markets — billions — and retail is at an all-time low value,” Wattles said.
That scenario would be a win-win-win for shareholders, CE vendors and Circuit City employees, he said, as it would keep the company well-capitalized and give it time to get back on track without the scrutiny and distractions of the public markets.
Wattles believes that a buyout by Blockbuster would also be a positive move for Circuit. “I’ve competed against them [as founder of Hollywood Video] and they have an exceptional employee hiring and training program” — an area where Circuit has fallen short after gutting its most seasoned staffers last year.
He also described Blockbuster CEO Jim Keyes as an “outstanding” chief executive.
The only thing that would preclude a sale to an interested party at this point would be if due diligence revealed “something really bad going on inside the company,” he said.
Whoever buys the chain could realize significant upside, and not through a wholesale restructuring either. “There’s no silver bullet,” Wattles said. “Speaking as a shareholder, my view from the outside is that it’s a matter of basic blocking and tackling and continued employee education and training.”
He said he followed his own advice with Ultimate Electronics, which is now posting positive same store sales.
Wattles said he recently had numerous meetings with Circuit’s lead director Michael Salovaara and its financial advisor, Goldman Sachs, and that the company’s change of heart came after the board was convinced that shareholder dissatisfaction was rampant.
“Once our discussions began, things moved very rapidly,” he said.
The retailer said it acquiesced to avoid a costly and disruptive proxy fight, and that Wattles, in return, agreed to back the board’s slate.
Chairman/CEO Phil Schoonover, whose resignation was sought by Wattles, did not participate in the meetings due to a potential conflict of interest in his dual role as a board member and management.
Wattles also hinted that his activism and the involvement of Blockbuster director Carl Icahn —who also tried to purchase Wattles’ Hollywood Video chain — may not have been completely coincidental. “Legally I can’t say,” he said, “but I have a relationship with Carl and it would be naiive to think we don’t talk.”
Separately, Circuit City has issued a “Customer FAQ” addressing possible shopper concerns over the status of their warranty and gift cards should the company be sold.