Circuit City to Go Out of Business After 60 Years (Update1)
By Steven Church and Mark Clothier
Jan. 16 (Bloomberg) -- Circuit City Stores Inc., the bankrupt consumer-electronics retailer, will shut down all of its 567 U.S. stores after failing to find a buyer that would keep the chain in operation.
Great American Group WF LLC; Hudson Capital Partners LLC; SB Capital Group LLC; and Tiger Capital Group LLC won the right to liquidate the company’s assets in a court-sanctioned auction. Circuit City creditors are guaranteed to get the first 70.5 percent of the value of the $1.2 billion to $1.3 billion in inventory. Stockholders will probably get nothing, Circuit City said today in a statement.
Sales declined at Circuit City, once the biggest U.S. electronics retailer, as it lost market share to Best Buy Co., Wal-Mart Stores Inc. and online retailers. On Nov. 10, it filed for bankruptcy in Richmond, Virginia, after suppliers cut off credit and demanded cash up front for shipments. At the time, Circuit City, which employs more than 30,000 people in the U.S., planned to exit court protection as a going concern.
“You can’t ignore the economic backdrop,” said David Schick, a retail analyst at Stifel Nicolaus & Co. in Baltimore. “Had Circuit run into all these problems and had to go Chapter 11 in any other year, they wouldn’t have had this outcome.”
Best Buy jumped $2.11, or 8.1 percent, to $29.34 at 4 p.m. in New York Stock Exchange composite trading, the largest increase in a month. The Richfield, Minnesota-based company is the biggest U.S. consumer-electronics chain.
Going-out-of-business sales at Circuit City’s remaining U.S. stores will start tomorrow and end by March 31. The liquidation agreement, which was approved by U.S. Bankruptcy Judge Kevin R. Huennekens, comes a day after the company held an auction described in court papers as its last chance to survive bankruptcy as a smaller chain.
‘Extremely Disappointed’
“The company had been in continuous negotiations regarding a going-concern transaction,” James A. Marcum, acting chief executive officer, said in the statement. “Regrettably for the more than 30,000 employees of Circuit City and our loyal customers, we were unable to reach an agreement with our creditors and lenders.”
Circuit City failed to negotiate a sale with Ricardo Salinas Pliego, Mexico’s fourth-richest man, or with Golden Gate Capital Corp., a San Francisco-based private-equity firm, company attorney Gregg Galardi told Huennekens at a hearing today. Neither could get financial support from lenders, who wanted suppliers to provide merchandise on credit, Galardi said.
With more time, Circuit City could have sold a smaller package of stores as a reorganized company, Galardi said. He blamed the main committee of creditors for refusing to allow more time to negotiate a sale.
Hewlett-Packard, Samsung
That committee is dominated by suppliers including Hewlett- Packard Co., Samsung Electronics Co. and Toshiba America Consumer Products LLC. The group called a halt to negotiations because Circuit City couldn’t offer any evidence that a sale was possible, committee attorney Jeffrey Pomerantz said.
Circuit City said it’s in discussions with bidders for its 765 Canadian stores and expects formal proposals by Jan. 23 from buyers who would continue to operate them.
Circuit City will get a $100 million letter of credit from the liquidators that it can draw from should they fail to realize a minimum amount from the sales. Before picking liquidators, the company had said it planned to collect a good-faith payment worth 10 percent of the value of its inventory.
Founded in 1949 by Samuel Wurtzel, Circuit City opened Richmond’s first retail television store. Rivals gained market share by offering Apple Inc. and Dell Inc. computers. Best Buy and Wal-Mart lowered prices on flat-panel TVs to lure U.S. customers, who are limiting spending because of rising unemployment and declining home values.
Firing Workers
Circuit City fired higher-paid workers in March 2007 and opened smaller stores to cut costs. Until then, the company’s strategy had been to rely on locations as large as 44,000 square feet (4,090 square meters).
Management tried to sell the company in May after movie- rental chain Blockbuster Inc. made a preliminary offer, which it withdrew a few months later.
The retailer hired FTI Consulting Inc. for restructuring advice and replaced CEO Philip Schoonover in September with Marcum, who has led two other retailers through bankruptcy.
On top of paying the 70.5 percent of inventory value, the liquidators will cover the cost of the going-out-of-business sale. Once those terms are met, the liquidators get a fee equaling 1 percent of the inventory’s value and 30 percent of the sale proceeds until they have accrued a total of 3 percent of the goods’ value. After that, Circuit City and the liquidators split sales 9-to-1.
In its Chapter 11 petition, Circuit City listed assets of $3.4 billion and debt of $2.32 billion.
The case is In Re Circuit City Stores Inc., 08-35653, U.S. Bankruptcy Court, Eastern District of Virginia (Richmond).
To contact the reporters on this story: Steven Church in Wilmington, Delaware, at schurch3@bloomberg.net; Mark Clothier in Atlanta at mclothier@bloomberg.net
Last Updated: January 16, 2009 16:18 EST |
