
Circuit City Stores, Inc.
(NYSE: CC) directors may be forced to fight for their job after a major
shareholder proposed an ouster of the entire board in a Schedule 13D/A filing
with the SEC. Mark Wattles’ Wattles Capital Management, which owns a
6.5 percent stake, also proposed to repeal any bylaw amendments or new
bylaws adopted by the board without shareholder approval. The move
follows his sharp criticism of the company’s turnaround plan and push
to pursue strategic alternatives mentioned in his previous January 22nd
13D filing. So, is Circuit City a stock worth adding to your portfolio?
Circuit City shares have fallen sharply from their 52-week high of
$19.60 per share to their current levels between $3 and $4 per share -
its lowest price since the 1990s. Recently, the electronics retailer
has attempted to improve its performance by cutting its workforce by
3,400 last year and eliminating $150 million in general expenses.
However, it has reported a $300 million loss so far this fiscal year
and anticipates a weak fourth quarter despite the supposed benefit of
the holiday season. This weak performance has caused many dissident
investors to speak up and take action.
Mark Watson, who also founded Hollywood Entertainment, initially
disclosed his stake in Circuit City back on January 22nd. The investor
hinted back then that he may push for the company to pursue strategic
alternatives, including a possible sale, but did not take the fight
public until last week. Now, Watson has launched a proxy battle after
being rebuffed by Circuit City’s board. His five nominees have a broad
range of expertise and seek to replace CEO Schoonover, who moved to the
company from Best Buy three years ago but still has not made public his
proposal for changes.
“WCM is submitting the foregoing business proposals for
consideration at the 2008 Annual Meeting in order to give shareholders
a greater voice in the governance and future strategic direction of the
Company,” said Mr. Wattles. “We do not believe that the Circuit City
Board has been acting in the best interests of its shareholders … WCM
[also] has serious questions as to whether the Circuit City Board as
currently constituted can provide the best solutions to the Company’s
current problems.”
In the end, it is clear that changes are needed at Circuit City. It
will be difficult for Wattles to replace the incumbent board given
their entrenchment, but the June annual meeting should prove to be one
worth watching closely. Wattles has already indicated an interest in
pushing the company towards a sale, which is only good news for
investors who are facing mounting losses under current management. And
at the very least, these dissident shareholders will send a message to
the board. Combined, these factors make CC a stock worth following!
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