Circuit City Crumbles
The electronics retailer sheds its assets after failing to land a buyer.
It looks like Circuit City Stores' mission to line up a buyer, saving it from certain death, has failed.
On Friday, Circuit City, which filed for Chapter 11 bankruptcy protection in November, announced it will liquidate its assets after a deal with creditors and lenders about a potential sale of the company never materialized. The company was expected to show the results of its assets auction at a hearing in U.S. Bankruptcy Court in Richmond, Va., on Friday.
The electronics retailer says it has reached an agreement with liquidators Great American Group, Hudson Capital Partners, SB Capital Group and Tiger Capital Group to sell the merchandise in its 567 U.S. stores after failing to find a buyer or a refinancing deal.
"This may be a warning to all those similar retailers that they need to be very careful about what they're doing," said Carl Tobias, a law professor at the University of Richmond. "I would assume Best Buy would be the heir to at least some of Circuit City's customers."
Last week, Circuit City said it was negotiating terms of a going concern transaction with two "highly motivated and interested parties" that were considering either providing the company with funding or buying some or all of it. The retailer's rivals are also struggling amid the downturn, with Best Buy posting a 6.5% drop in December same-store sales.
The identities of the interested parties were never revealed. A strong possibility is Mexican media mogul Ricardo Salinas Pliego, given that he sees value in the Circuit City name, according to a representative for his media group, Grupo Salinas. Salinas bought shares in the company as it was spiraling into bankruptcy, building up a 28.1% stake in the ill-fated retailer.
In November, Salinas, who owns Mexico's TV Azteca broadcaster and retailer Elektra, said in a filing that he bought the shares "with a view toward possibly seeking influence over the management, business and operations" of Circuit City. "However, no decision in this regard has yet been made," according to the document.
The filing also said Salinas might acquire additional shares and reserves the right to develop plans or proposals regarding the retailer. It added that he may consider participating in transactions that are part of the Chapter 11 proceeding.
Tobias said that it's unclear why Salinas would build up his stake in the company only to let it fall into bankruptcy months later. "Maybe it didn't make sense ultimately," he said.
Earlier this month, Circuit City sought approval from U.S. bankruptcy regulators to formally put the company up for sale either as a going concern or as separate units and assets.
The Associated Press contributed to this article.