Does a Circuit City buyout signal that the stock is worth more than its current share price?
Circuit City (NYSE: CC, Bullboard) has taken a wild ride over the last two years, and has ended up in a position where part or all of the company may be sold. The stock trades just above $5, down from a 52-week high of almost $18. Much of the drop is due to weak retail sales in many chains caused by a faltering economy. CC has the additional problem that it has larger competitors like Best Buy (NYSE: BBY, Bullboard) and Wal-Mart (NYSE: WMT, Bullboard) , which have more stores and deeper pocket books.
Last month, movie rental chain Blockbuster (NYSE: BBI, Bullboard) offered to buy Circuit City for about $1 billion. Why the deal makes sense for Blockbuster is hard to fathom, but CC shareholders probably don't care if they end up with a high purchase price. Carl Icahn, a large Blockbuster shareholder, will make sure that the rental company has access to cash. On that basis, Circuit City is allowing Blockbuster to look at its books.
Almost everyone wants a piece of a Circuit City buyout, which should be an indication that the stock is worth much more than its current share price. Wattles Capital fought to get three board seats and was able to win the battle. The fund clearly thinks that being "inside" the company will help them push up the firm's value
Circuit City has lost money for the last four quarters. Even when the company was doing well three years ago, profits were modest.
Shareholders may get a buyout. From their standpoint it is the best result possible.
