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Circuit City a Target?

Shares Circuit City (CC) surged over 20% last week on news that Hollywood Entertainment Corp founder Mark Wattles acquired a 6.5% stake.

According to a filing with the SEC, Wattles acquired the stake in Circuit City for “investment purposes and may buy additional shares, encourage the company to enter a merger, or nominate candidates for the board.”

Wattles, who owns 32 stores of the Ultimate Electronics Stores chain and his affiliated companies acquired 11 million shares of Circuit City after they met with management, the filing said. This comes on the heals of the Classic Fund Management Aktiengesellschaft, a Liechtenstein-based asset management company, disclosing it holds a 5.7 percent passive stake in Circuit City.

Wattles filed for a “blank check IPO” in December and wanted to raise up to $200 million “to focus on potential acquisition targets in the consumer products and retail industry.”

Is Circuit City a good takeover target? Yes, but only if current management is set free to “pursue other opportunities”. I have repeatedly written about management’s missteps and until it is clear they are gone, any speculation on the chain’s recovery because of who owns shares is a total gamble. I have said before CC has a great brand, good stores in great locations but they are just abysmally run.

Different people owning shares will not change that.

Disclosure (“none” means no position): None

Todd Sullivan's- ValuePlays

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