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Circuit City Receives Acquisition Proposal
Feb 15, 2005
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Consumer electronics retailer Circuit City Stores, Inc. announced that it has received an unsolicited letter from Highfields Capital Management LP indicating Highfields' interest in pursuing an acquisition of all of Circuit City's outstanding shares at a price of U.S. $17.00 in cash per share.

The Highfields proposal is subject to a number of conditions, including completion of due diligence, agreements with management, and the negotiation of a merger agreement.

The retailer's board of directors said it will carefully evaluate the Highfields proposal, and other alternatives available to the company, taking into account the potential benefits that may be realized through the company's strategic, operational, and financial initiatives, and the risks associated with them. Circuit City said it has retained Goldman, Sachs & Co. to assist the board in its evaluation.

"While the board evaluates the Highfields proposal with the help of outside advisors, we on the Circuit City management team, as well as our more than 40,000 associates across North America, must and will focus on continuing to meet the needs of our customers and business partners, continuing to implement steps aimed at improving our strategic, operational, and financial performance and, in turn, achieving our number-one goal: building value for our shareholders," said W. Alan McCollough, chairman and CEO of Circuit City Stores, Inc.

In the letter, Highfields said that although the Circuit City has taken some steps to address its operating performance and suboptimal capital structure, Highfields is disappointed that management has been unable to move more aggressively.

Highfields said it attributed this to the emphasis on Circuit City's monthly sales, quarterly earnings, and other short-term targets in addition to the company's inability to react to the increasing competitive nature of the business.

"These and other factors make it increasingly clear that the public market will not give full value to the company's established franchise anytime soon, and as a result, we believe that Circuit City may be better suited to execute its business plan as a privately-held company," the letter stated.

Highfields said that its offer of $17.00 represents a premium of over 20 percent both to the close and the average closing price of Circuit City shares for the last 20 trading days.

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