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Showing posts with label retail. Show all posts
Showing posts with label retail. Show all posts
Tuesday, December 3, 2019
Wednesday, July 2, 2008
Circuit City: So Toxic that Nobody Wants It
Is there such a thing as a bride so ugly that no one will marry her? Apparently there is such a thing as a business so toxic that everyone steps away from buying it.
One of the great fears of any party seeking to close a deal to purchase Circuit City (CC) is that the due diligence would reveal information so negative that potential acquirers would drop their bids. Apparently this scenario is playing out.
Blockbuster (BBI) dropping its bid may be due to other bidders pushing up the price; more likely it is that further disclosure revealed that Circuit City is already deeply entangled in its death throes. Blockbuster's Chief Executive Jim Keyes cited "market conditions" as a reason for withdrawing its offer, valued at up to $1.3 billion, and said the deal was not in the best interests of its shareholders.
Circuit City dropped over 16% on the open on Wednesday after this news. Blockbuster climbed over 12%, the shareholders gleeful that this proposed merger has been dropped. It is interesting to note that Blockbuster had offered at lest $6 per share for Circuit City. CC stock now sits at $2.19; effectively the proposed deal was at triple the price of Circuit City stock. The failure of Circuit City management to grease the skids on this deal will probably go down in financial history as one of the worst executive decisions ever; unless some other suitor actively closes on a transaction.
Philip J. Schoonover, the CEO of Circuit City, kept hope alive for a deal by commenting, "Our exploration of strategic alternatives is intended to serve the interests of our shareholders by considering every possible alternative to enhance shareholder value. The board's review was not dependent on Blockbuster's (BBI) participation. We are diligently working with the parties involved in the process, and intend to continue our thorough approach until such point as the board determines upon a particular strategic course of action. The board has not established a deadline for completing the review."
Loosely translated this means, “We are trying to find a deal that will leave the existing management team employed with large compensation packages despite our ruinous track record. The board is hoping some magical deal materializes shortly with a private equity fund. If something does not pop up soon; the company will be dead as we complete the review of the bankruptcy paperwork.”
The only constant is that the long suffering Circuit City stockholders will continue to be disappointed.
One of the great fears of any party seeking to close a deal to purchase Circuit City (CC) is that the due diligence would reveal information so negative that potential acquirers would drop their bids. Apparently this scenario is playing out.
Blockbuster (BBI) dropping its bid may be due to other bidders pushing up the price; more likely it is that further disclosure revealed that Circuit City is already deeply entangled in its death throes. Blockbuster's Chief Executive Jim Keyes cited "market conditions" as a reason for withdrawing its offer, valued at up to $1.3 billion, and said the deal was not in the best interests of its shareholders.
Circuit City dropped over 16% on the open on Wednesday after this news. Blockbuster climbed over 12%, the shareholders gleeful that this proposed merger has been dropped. It is interesting to note that Blockbuster had offered at lest $6 per share for Circuit City. CC stock now sits at $2.19; effectively the proposed deal was at triple the price of Circuit City stock. The failure of Circuit City management to grease the skids on this deal will probably go down in financial history as one of the worst executive decisions ever; unless some other suitor actively closes on a transaction.
Philip J. Schoonover, the CEO of Circuit City, kept hope alive for a deal by commenting, "Our exploration of strategic alternatives is intended to serve the interests of our shareholders by considering every possible alternative to enhance shareholder value. The board's review was not dependent on Blockbuster's (BBI) participation. We are diligently working with the parties involved in the process, and intend to continue our thorough approach until such point as the board determines upon a particular strategic course of action. The board has not established a deadline for completing the review."
Loosely translated this means, “We are trying to find a deal that will leave the existing management team employed with large compensation packages despite our ruinous track record. The board is hoping some magical deal materializes shortly with a private equity fund. If something does not pop up soon; the company will be dead as we complete the review of the bankruptcy paperwork.”
The only constant is that the long suffering Circuit City stockholders will continue to be disappointed.
Tuesday, June 24, 2008
Who wants to buy Circuit City?
An earlier summary regarding Circuit City outlined how all of the vultures that have been sitting on the sideline would be drawn out once Blockbuster started bidding. It is time to either fish or cut bait for all other potential suitors.
An article from Reuters today stated that Circuit City has received buyout interest from several strategic and financial bidders. A sale is expected to be announced over the next month.
The only question at this point is how much the carcass of this poorly managed electronics retailer will go for? I believe that many long suffering stockholders will be sadly disappointed at the price.
An article from Reuters today stated that Circuit City has received buyout interest from several strategic and financial bidders. A sale is expected to be announced over the next month.
The only question at this point is how much the carcass of this poorly managed electronics retailer will go for? I believe that many long suffering stockholders will be sadly disappointed at the price.
Monday, April 14, 2008
Circuit City: The vultures swoop in
Circuit City (CC), the electronics retailer in dismal shape due to gross mismanagement received a take-over bid from Blockbuster (BBI), the video rental retailer that has an existing set of problems. Vultures have been eyeing the carcass of Circuit City for a good period of time; it should not be a surprise that another retailer has swooped in to take a peck.
In terms of business intent, a combination with Blockbuster may be one of the better proposed deals placed on the table. Certainly better than simply selling out to a private equity firm. In reality, many would look at Blockbuster as being more of a white knight than a vulture.
Highlights of the offer include $6 to $8 per share in cash, a total of up to $1.3 billion. It appears that the chronically mismanaged Circuit City has effectively ignored earlier private proposals, so Blockbuster took the step of making this bid public and engaging shareholders. The press releases indicate that Blockbuster is proposing to use a rights offering, a mechanism that allows existing shareholders to buy additional shares of a company, in order to complete the transaction. Rights offerings are rare in the United States and typically occur at a discounted price.
Blockbuster has emerged as a survivor in a movie rental industry that is undergoing sharp transition. Over the past couple of years, several competitors such as Movie Gallery and Hollywood Video filed for bankruptcy or have been shuttering stores. Competition from online firms, delivering rentals via mail, such as Netflix (NFLX) have stepped up the bar in the industry. Pay per view films offered by cable operators have also deeply cut into the rental business. Being strictly a corner store video rental business is no longer a viable business model.
Blockbuster touted the synergies of the proposed combination; pointing to the ability to cut costs, exploit the growing convergence of media content and electronic devices, and benefit from selling complementary products. Circuit City stores are typically larger than Blockbuster storefronts; one could expect to see “Blockbuster super-stores” that sell electronics and rents movies. However, even if the deal is completed the expectation is that is would take over 12 months to see viable traction with the combination. A large number of existing neighborhood Blockbuster stores would probably be shuttered; frustrating consumers who have to drive longer distances to the new “super stores”, many which are located in crowded malls.
Investors also appear to be skeptical as they drove Blockbuster stock down over 10% in trading on Monday. Many doubt that Blockbuster can cure the problems plaguing Circuit City without causing a tremendous distraction to the company’s primary business. The financing for the transaction is also in doubt and may be dilutive.
Circuit City, winner of the dumbest retail business move of 2007, is a poorly managed underperformer. Its closest competitor, Best Buy (BBY), has been dominating the electronics retail segment. In a continuing sad saga, Circuit City handed out sizeable bonuses for executives while cutting top-performing employees at stores because they were “over-paid”. In response both the sales and stock price tanked. The ills of Circuit City can only be resolved by the replacement of the current management team, and a complete re-focus on the consumer.
Circuit City stock rose nearly 30% on Monday when the news hit the wire. The bid by Blockbuster may be just the front end of a chain of bids for the company. Other players, who have been sitting on the sideline, now may be forced to show their hands and open their wallets. Setting the table for a possible bidding war, an event that would please many long-suffering Circuit City stockholders immensely.
In terms of business intent, a combination with Blockbuster may be one of the better proposed deals placed on the table. Certainly better than simply selling out to a private equity firm. In reality, many would look at Blockbuster as being more of a white knight than a vulture.
Highlights of the offer include $6 to $8 per share in cash, a total of up to $1.3 billion. It appears that the chronically mismanaged Circuit City has effectively ignored earlier private proposals, so Blockbuster took the step of making this bid public and engaging shareholders. The press releases indicate that Blockbuster is proposing to use a rights offering, a mechanism that allows existing shareholders to buy additional shares of a company, in order to complete the transaction. Rights offerings are rare in the United States and typically occur at a discounted price.
Blockbuster has emerged as a survivor in a movie rental industry that is undergoing sharp transition. Over the past couple of years, several competitors such as Movie Gallery and Hollywood Video filed for bankruptcy or have been shuttering stores. Competition from online firms, delivering rentals via mail, such as Netflix (NFLX) have stepped up the bar in the industry. Pay per view films offered by cable operators have also deeply cut into the rental business. Being strictly a corner store video rental business is no longer a viable business model.
Blockbuster touted the synergies of the proposed combination; pointing to the ability to cut costs, exploit the growing convergence of media content and electronic devices, and benefit from selling complementary products. Circuit City stores are typically larger than Blockbuster storefronts; one could expect to see “Blockbuster super-stores” that sell electronics and rents movies. However, even if the deal is completed the expectation is that is would take over 12 months to see viable traction with the combination. A large number of existing neighborhood Blockbuster stores would probably be shuttered; frustrating consumers who have to drive longer distances to the new “super stores”, many which are located in crowded malls.
Investors also appear to be skeptical as they drove Blockbuster stock down over 10% in trading on Monday. Many doubt that Blockbuster can cure the problems plaguing Circuit City without causing a tremendous distraction to the company’s primary business. The financing for the transaction is also in doubt and may be dilutive.
Circuit City, winner of the dumbest retail business move of 2007, is a poorly managed underperformer. Its closest competitor, Best Buy (BBY), has been dominating the electronics retail segment. In a continuing sad saga, Circuit City handed out sizeable bonuses for executives while cutting top-performing employees at stores because they were “over-paid”. In response both the sales and stock price tanked. The ills of Circuit City can only be resolved by the replacement of the current management team, and a complete re-focus on the consumer.
Circuit City stock rose nearly 30% on Monday when the news hit the wire. The bid by Blockbuster may be just the front end of a chain of bids for the company. Other players, who have been sitting on the sideline, now may be forced to show their hands and open their wallets. Setting the table for a possible bidding war, an event that would please many long-suffering Circuit City stockholders immensely.
Friday, December 21, 2007
Circuit City: A continuing sad saga
Very rarely do you witness analysts asking the CEO to throw in the towel, sell the company, and step down in the quarterly conference call. At Circuit City this is becoming a regular routine.
While sales at nearest competitor Best Buy rose, Circuit City’s sales slipped 3 percent to $2.96 billion from $3.06 billion a year earlier, with sales at stores open at least a year (a closely watched retail metric) falling 5.6 percent. The financial performance did not fare well either despite cutting all those “highly-paid” associates in stores, “losses ballooned to $207.3 million, or $1.26 per share, from $20.4 million, or 12 cents per share, a year ago”.
The management team lead by CEO Philip Schoonover maintains the company is on the right track and said, "We're staying the course on our longer-term strategic initiatives." It appears the master strategy is to turn on the jets and dive towards bankruptcy.
In a further absurdity, Circuit City announced the approval of millions in cash incentives to retain its executives. These are the same executives that canned all the top performers in stores earlier in 2007 and then watched the stock drop 70% since.
“The bonuses didn't sit well with Merrill Lynch analyst Danielle Fox, who questioned whether Circuit City should be focusing on incentives for the people who sell its products in stores.”
It appears to be time to officially place Circuit City on the “death watch” list. Shortly they can join CompUSA in shuttering all the stores and auctioning the remaining inventory.
Circuit City Posts Huge 3Q Loss
Circuit City Posts Wider-Than-Expected 3rd-Quarter Loss, Shares Tumble
http://biz.yahoo.com/ap/071221/earns_circuit_city.html
While sales at nearest competitor Best Buy rose, Circuit City’s sales slipped 3 percent to $2.96 billion from $3.06 billion a year earlier, with sales at stores open at least a year (a closely watched retail metric) falling 5.6 percent. The financial performance did not fare well either despite cutting all those “highly-paid” associates in stores, “losses ballooned to $207.3 million, or $1.26 per share, from $20.4 million, or 12 cents per share, a year ago”.
The management team lead by CEO Philip Schoonover maintains the company is on the right track and said, "We're staying the course on our longer-term strategic initiatives." It appears the master strategy is to turn on the jets and dive towards bankruptcy.
In a further absurdity, Circuit City announced the approval of millions in cash incentives to retain its executives. These are the same executives that canned all the top performers in stores earlier in 2007 and then watched the stock drop 70% since.
“The bonuses didn't sit well with Merrill Lynch analyst Danielle Fox, who questioned whether Circuit City should be focusing on incentives for the people who sell its products in stores.”
It appears to be time to officially place Circuit City on the “death watch” list. Shortly they can join CompUSA in shuttering all the stores and auctioning the remaining inventory.
Circuit City Posts Huge 3Q Loss
Circuit City Posts Wider-Than-Expected 3rd-Quarter Loss, Shares Tumble
http://biz.yahoo.com/ap/071221/earns_circuit_city.html
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