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NEW YORK -
Consumer electronics retailer Circuit City Stores said
Friday that it will allow Blockbuster to review its books in
connection with the video-rental chain's bid to buy the
company.
Circuit
City also revealed that it received a letter from
Blockbuster indicating that the company's largest
shareholder, investor Carl Icahn, is prepared to buy Circuit
City on his own if Blockbuster can't get financing or can't
get shareholder approval.
Richmond,
Va.-based Circuit City Stores Inc. said it hired Goldman
Sachs & Co. to explore strategic alternatives, which may
include a sale of the company, but that its board has not
determined to pursue a particular option.
Shares of
Circuit City gained 40 cents, or nearly 8 percent, to $5.19
in early trading. Blockbuster's stock dropped a penny to
$2.67.
Blockbuster
publicly announced a takeover bid of just over $1 billion
for Circuit City with plans for creating a huge chain that
would sell electronic gadgets and rent movies and games.
Circuit City has said it doubts Blockbuster could finance
the deal and has resisted opening its books.
Blockbuster
said in a statement Friday that it was pleased to reach a
"due diligence" agreement with Circuit City.
"While
it is our hope that the due diligence process will reinforce
both the strategic and financial rationale behind the deal,
we are committed to only doing a transaction that provides
substantial benefits for our shareholders," the
Dallas-based company said.
Circuit
City said the Icahn letter answered some questions related
to the potential transaction. But Philip J. Schoonover, who
is chairman, president and chief executive, cautioned about
reading too much into the current state of the discussions.
"Let
me be clear that our decision to allow Blockbuster and Carl
Icahn to conduct due diligence should not be taken as an
indication that the board has completed its review of the
Blockbuster proposal, that the board has taken a position on
the company's value or that it has settled upon a particular
strategic course of action," he said in a statement.
Circuit
City also reached a deal to put three of Wattles Capital
Management's board nominees up for election at its annual
meeting, potentially avoiding a proxy battle with the
activist minority shareholder.
Wattles,
which owns about 6.5 percent of Circuit City's outstanding
stock, indicated in a regulatory filing with the Securities
and Exchange Commission last month that it would ask
shareholders to elect five new directors for Circuit City's
12-member board and oust the others.
Mark J.
Wattles, owner of the 32-store Ultimate Electronics chain,
has criticized Circuit City's turnaround efforts, placing
blame on Schoonover and asking for him to be replaced.
In the
filing, Wattles questioned the existing board's willingness
to hold senior management accountable for poor performance
at Circuit City - which lost $319.9 million in its last
fiscal year, deeper than the loss of $8.3 million the
previous year.
One of
Wattles board nominees will become a member of the board's
executive committee. At least two of Circuit City's current
board members will step down or not run for re-election at
the meeting to accommodate some of the Wattles board
nominees.
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