Wattles Capital urges Circuit City to negotiate with Blockbuster

By Lisa Kerner

Charlotte, N.C., April 23 - Circuit City Stores, Inc. shareholder Wattles Capital Management, LLC outlined reasons it believes the company should provide Blockbuster Inc. access to due diligence information and begin good-faith negotiations about a merger.

The shareholder's reasons include the fact that Blockbuster is not a competitor, its board supports the offer and Carl Icahn or an affiliate is willing to finance the deal.

Wattles, in an April 23 open letter to the company's board of directors, also demanded that the board simultaneously seek out other potentially interested buyers and begin a competitive bidding process.

On April 14, Blockbuster said Circuit City failed to provide due diligence following its Feb. 17 offer to acquire Circuit City for at least $6 per share in cash.

In a Wednesday statement, Circuit City said Blockbuster has not provided answers "to a number of basic questions regarding its ability to finance its proposal."

Goldman, Sachs & Co., Circuit City's financial adviser, believes Blockbuster cannot consummate the proposed transaction in "light of the difficult current financing environment," Circuit City said.

According to its statement, Circuit City is waiting for a "viable financing structure that is predictably executable by Blockbuster" before it will allow further due diligence.

Wattles said the board's past actions have made the investor skeptical of the board's willingness "to take all steps necessary to maximize shareholder value."

The investor previously asked Circuit City's board "not to summarily dismiss any legitimate, third party interest in acquiring or merging with the company."

Circuit City rejected, on two occasions in the past five years, what appeared to be legitimate interest in acquiring the company, Wattles' letter said.

"If Blockbuster withdraws its offer because of a lack of cooperation by the board, we believe Circuit City shareholders will be immediately and substantially damaged," the letter said.

Wattles called for the replacement of Circuit City chairman and chief executive officer Philip Schoonover in a letter to the company's board of directors released on April 2.

In February, it was reported that the investor, with a then 6.5% stake in the Richmond, Va.-based electronics retailer, put forth a slate of five nominees for election to the company's board at the annual meeting on June 24.

Wattles has said there is the potential to unlock "hundreds of millions of value" in the near term and "billions of value" in the long term for Circuit City stockholders, despite the "disastrous" efforts of current management to turn the company around.

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