NEW YORK – Circuit City Stores Inc. (CC) Tuesday said it received an unsolicited takeover bid valuing the struggling electronics retailer at $3.25 billion, and its shares rose above the offer price, indicating expectations of a better offer.
Private investment firm Highfields Capital Management LP (search), which already owns 6.7 percent of Circuit City's shares, bid $17 a share for the company. Circuit City shares rose as high as $17.24 in early trading.
Bill Armstrong, an analyst at C.L. King & Associates, said the stock's rise suggested other private investment firms may jump in, sparking a bidding battle.
He said it was also possible, though somewhat unlikely, that a rival might also seek to buy Circuit City, a chain of more than 635 stores.
"Circuit City has a nearly debt-free balance sheet (and) lots of cash, so they could be attractive to other financial buyers as well," said Armstrong, who maintains an "accumulate" rating on Circuit City shares and personally owns some of the stock.
Richmond, Virginia-based Circuit City, which has been grappling with increasing competition from industry leader Best Buy Co. Inc. (BBY) and discounters like Wal-Mart Stores Inc. (WMT), said it would evaluate the Highfields offer.
For the last four years, Circuit City has struggled with inconsistent sales and earnings as its market share has slipped.
In a letter to Circuit City, which the retailer made public, Highfields suggested it would probably be better for Circuit City to go private and remove some of the demands and scrutiny that come with being a public company.
"Such a transformation would eliminate the public-company transparency into the company's operating strategy that is uniquely damaging in a highly competitive industry where Circuit City is going head-to-head with a tough and entrenched rival," the letter said.
Highfields attracted attention in 2001 when manager Richard Grubman challenged former Enron Corp. Chief Executive Jeffrey Skilling (search) in a conference call before Enron's implosion.
The investment firm, which said on Tuesday that it owned 12.9 million of Circuit City's 191.3 million outstanding shares, often needles companies it invests in, taking big stakes and then agitating for change.
In its letter to Circuit City, Highfields said the retailer had taken steps to cure its ills but added that "we are nevertheless disappointed that management has been unable to move more aggressively."
Highfields said it envisioned financing the acquisition of Circuit City with a combination of senior and subordinated debt and equity. The private investment firm manages more than $6.5 billion in assets.
After quickly jumping to $17.24, Circuit City shares later fell back to $17.04, up $2.81, or 19.6 percent, in morning trade on the New York Stock Exchange.
Circuit City said it has retained Goldman Sachs & Co. to assist its board in its evaluation of the buyout offer.
Highfields, based in Boston, has hired UBS Investment Bank as its financial adviser and Goodwin Proctor LLP as legal adviser.