RICHMOND, Va. – Circuit City Stores Inc.'s share price plummeted to historic lows in trading yesterday after Blockbuster Inc. withdrew its takeover bid, causing investors to question the consumer electronics retailer's future.
Shares of the Richmond, Va.-based company fell 23 cents, or 9 percent, to close at $2.32 after hitting a more-than-17-year low of $2.10 in earlier trading.
The company, which has seen its shares fall 86 percent from its 52-week high of $15.33, says it will continue to review strategic alternatives.
Blockbuster on Tuesday night pulled its bid to buy Circuit City, citing market conditions. The Dallas-based movie-rental chain had proposed a deal in April worth more than $1 billion, with plans to create a 9,300-store chain to sell electronic gadgets and rent movies and games. Blockbuster shares rose 14 cents, or 5.6 percent, to close at $2.65.
Circuit City has seen only one profitable quarter since the second quarter of 2007, but it continues to defend its multiyear turnaround plan despite some missteps and has asked shareholders for the time necessary to leverage the company's future.
“If you look at our largest competitor (Best Buy Co. Inc.), this is still a healthy business,” CEO Philip J. Schoonover reiterated to reporters after Circuit City's annual shareholder meeting last month. “The market is within our control if we get the time.”
Despite the company's confidence in its turnaround efforts, Circuit City's board will look for any alternative that would enhance value or possibly speed up the turnaround process, spokesman Bill Cimino said yesterday.
“Our focus has always been on what's going to drive the most shareholder value,” Cimino said.
The company has given no timetable for action.
JPMorgan analyst Chris Horvers told investors in a report yesterday that he believes there are additional interested parties and that “while this does not guarantee a deal (total buyout or other capital investment), due diligence from others is ongoing.”
Horvers said Circuit City's next announcement should indicate the outcome of the process.
Horvers wrote that Circuit City said vendors continue to provide inventory and have not seen a tightening of terms despite its financial conditions and slowing consumer spending.
“We think the vendors will give (Circuit City) through the holidays to turn the business before resorting to such a tactic,” Horvers wrote. “Any move by one large vendor could have a snowballing effect on the company.”
Circuit City operates nearly 700 stores in the United States and 775 stores and dealer outlets in Canada.
Minnesota-based rival Best Buy reported a 7 percent drop in first-quarter profit last week, saying net income dipped to $179 million from $192 million.
