Circuit City Stores Inc., which has struggled to keep up with industry leader Best Buy, said Tuesday that a Boston investment firm made a $3.25 billion unsolicited offer to take the company private. Shares of the nation’s No. 2 chain of consumer electronics stores surged.
Highfields Capital Management, which holds a nearly 7 percent stake in Circuit City, made the offer after expressing dissatisfaction with the retailer’s current performance. The bid represented a premium of nearly 20 percent to Circuit City’s share price of $14.23 at the close of trading Monday.
Shares of Circuit City rose $2.50, or 17.6 percent, to $16.73 in midday trading on the New York Stock Exchange. The stock has traded in a 52-week range of $10.18 to $17.87.
Circuit City said its directors will “carefully” evaluate the proposal, as well as other available alternatives. It has retained Goldman Sachs as an adviser, while Highfields is being advised by UBS Investment Bank.
Bill Cimino, a Circuit City spokesman, said the company would have no comment outside of its prepared statement.
Highfields, which own about 6.8 percent of Circuit City’s shares according to a regulatory filing Tuesday, did not immediately return a telephone call seeking comment. The fund is known for being a vocal advocate for shareholder interests. It has exerted heavy pressure on management at a number of companies, including Janus Capital Group and the former Reynolds Metals, which was sold the company to Alcoa Inc.
Analyst William R. Armstrong of C.L. King & Associates said the bid is “not an especially rich offer.” But for Highfields, acquiring Circuit City certainly has its advantages.
“As (Circuit City) has virtually no debt and will likely end the year with close to $1 (billion) in cash, it could clearly be attractive to a financial buyer,” Armstrong wrote Tuesday.
Circuit City lost $89.3 million on $9.75 billion in sales in its fiscal year ended Feb. 29, 2004. More recently, the company, which trails industry leader Best Buy Co. Inc., reported disappointing holiday sales in part due to heavy promotions.
In a Feb. 11 letter to Circuit City’s board of directors, Highfields fund managers Jonathon S. Jacobson and Richard L. Grubman expressed their displeasure with the retailer’s lagging performance, saying they believed the retailer would do better as a privately held business. The managers also raised their concerns in a meeting last week with W. Alan McCollough, Circuit City’s chief executive.
“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,” the fund managers wrote. “We attribute this partially to the demands and scrutiny that come with being a public company ... and partially to the company’s historical inability to react to the increasing competitive nature of the business.”
As a private company, Circuit City “will be able to effect change more rapidly with fewer constraints,” the managers wrote.