Circuit City allows due diligence on Blockbuster acquisition bid

UPDATE: Wattles says retailer could be sold within two months, according to TWICE

By Susanne Ault -- Video Business, 5/9/2008

MAY 9 | Circuit City has agreed to allow Blockbuster and its largest shareholder, Carl Icahn, to conduct due diligence on the rental chain’s proposal to acquire the electronics retailer. Meanwhile, shareholder Mark Wattles told TWICE the electronics chain might have a number of suitors and could be sold within two months.

Wattles' Wattles Capital Management have agreed to slot WCM’s slate of three nominees to the retailer’s board of directors.

Wattles, the former head of Hollywood Video, has been a supporter of Blockbuster purchasing Circuit City since the rental chain’s intentions became public last month. However, analysts and Circuit City questioned Blockbuster’s ability to finance the deal.

With its Circuit City nominee slate, WCM has agreed to vote its shares in support of all of the board’s director nominees and not solicit proxy fights at Circuit City’s upcoming Annual Meeting. Additionally, WCM will abide by confidentiality provisions through the 2009 Annual Meeting.

At least two of Circuit City’s current directors will either step down or decline to stand for reelection at Circuit City’s 2009 shareholder gathering. One of the WCM's three nominees to be voted upon during Circuit City’s 2008 Annual Meeting will become part of the chain’s executive committee of the board.

WCM owns 11 million shares of Circuit City common stock, representing 6.5% of the chain’s outstanding shares.

“We are pleased that this matter has been resolved in a matter that best serves the interests of all Circuit City shareholders,” said Philip J. Schoonover, chairman, president and CEO of Circuit City. “Through this agreement, Circuit City and WCM will avoid a costly and disruptive proxy contest at a time when the company is exploring a full range of strategic alternatives to enhance shareholder value. Our board and management team also can remain focused on serving our customers and executing our business plan as we continue to pursue the many opportunities that lie ahead of our company.”

Wattles added, “I am confident that the Circuit City board and Goldman Sachs are committed to a process that will maximize shareholder value. As a result, we are able to resolve our differences and will now work to support that process in any way we can.”

On the same day that Circuit City said it was moving forward on Blockbuster’s proposal, the rental chain expressed hope that a deal may eventually be reached. Blockbuster is seeking to acquire Circuit City for $6 per share.

“We are pleased to have reached an agreement with Circuit City to conduct due diligence and further explore a possible merger between our two companies,” Blockbuster said in a statement. “We continue to believe this combination would create a significant cost and operating synergies, therefore unlocking substantial value for our shareholders.”