Author: ToddSullivan

Circuit City’s (CC) Board responded to Mark Wattles demands today.

In said letter they said (letter below):

April 4, 2008

Mark J. Wattles
Wattles Capital Management, LLC
7945 W. Sahara Avenue, Suite 205
Las Vegas, NV 89117

Dear Mark:

We have received your letter of April 2, 2008, in which you indicate that you would like to meet with the Circuit City Board of Directors or with its lead director to discuss your views regarding Circuit City. I will contact you to set a mutually agreeable time.

It appears to me from your letter and certain other statements that you may not have a full understanding of the Company’s current strategy and challenges, and I think a conversation will help provide a better picture of those efforts and possibly facilitate a more productive dialogue between the Company and your firm. I also want to note that the company had previously reached out to you to set up a meeting following the year-end management quiet period or to listen to your concerns prior to our reporting date.

It was a surprise to read that you would not permit the individuals you have proposed as nominees to the Company’s Board of Directors to meet with the Nominating and Governance Committee of the Board without imposing an unusual and unreasonable condition for such a meeting. Our practice is for the Committee to evaluate director nominees proposed by shareholders in the same manner it evaluates other prospective nominees. We believe this is a very standard and appropriate process. The Board strives to select for its membership highly qualified individuals who are dedicated to advancing the interests of the Company’s shareholders and actively seeks nominees who will bring diverse talents, experiences and perspectives to the Board’s deliberations. Certainly you would agree the Board has an obligation to its shareholders to thoroughly research and personally interview potential members. This is even more true given that your proposal to remove the entire Circuit City Board would, if adopted, give your nominees absolute control of the entire Board.

I trust that we can resolve this point in a personal conversation, so that the Nominating and Governance Committee can meet the individuals you have nominated to the board, and separately look forward to the opportunity to meet with you.
Sincerely,

/s/ Mikael Salovaara
[JT]

Here is the “between the lines” on this one. Wattles is attacking both the Board and CEO Schoonover. What the board is going to do is offer up Schoonover as a sacrificial lamb to get Wattles to back off his demand to remake the Board.

Defending Schoonover is an exercise in futility as the “conditions” the company now facing are of his creation and even those who are his closest allies must realize this. If they do not, CC’s problems are deeper than anyone thinks.

They are going to go through the public pronouncements necessary to save face but when all is said and done, Schoonover is out.
That being said, we can now officially beginning the “Schoonover Reign Death Watch”

My guess is that before the month is out CC has a new CEO.

Disclosure (“none” means no position):None

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Activist Mark Wattles has had the best line to date on Circuit City’s (CC) turnaround effort.

Wattles said management “has repeatedly touted the fact that they have cut $200 million of annualized selling, general and administrative expenses while ignoring the fact that approximately $500 million of gross profit has been wiped-out in the process.”

Beautiful…

He has also nominated 5 people to the Board of Directors and a proxy fight is on.

I first wrote about CC almost a year ago now and speculated it may be a good buy-out candidate. Not soon after that I backed off that claim after watching Schoonover & Crew’s various missteps and have since said that the company is still a good buy-out candidate, but not until current management is gone.

The WJS ran a piece Thursday that said “The company has a lot of financial commitments to stores in sub-par locations. Many retailers have gone the way of all flesh. It’s a precarious industry. Their former big box stores litter the landscape like giant ruins. Circuit City could certainly follow suit. The advantage of a $4.65 share price, as speculators are wont to joke, is that you know your downside. That’s even more true of the options. There is nothing wrong with taking a flyer, so long as you know that’s what you’re doing.”

Now, to a point the author is correct in that at $4.50 a share, the downside is minimal. But, unless you buy a bunch, so is the upside. Your profit or loss is based on what your total investment is, regardless of share price.

Whether a stock is $100 or $2, really does not matter, it is the dollar amount you buy that matters. If I by 2 shares at $100 or 100 shares at $2, my investment is the same.

All that being said, I may buy the day Schoonover leaves, but not a second before. Given the current economy and his track record, $4.50 is much more likely to become $2.50 than $6.50 in the near future.

If shareholders are lucky, Wattles gets his wish….

Disclosure (“none” means no position):None

↑ Grab this Headline Animator

Visit the ValuePlays Bookstore for Great Investing Books

This work is licensed under a Creative Commons Attribution 2.5 License.

Activist Mark Wattles has had the best line to date on Circuit City’s (CC) turnaround effort.

Wattles said management “has repeatedly touted the fact that they have cut $200 million of annualized selling, general and administrative expenses while ignoring the fact that approximately $500 million of gross profit has been wiped-out in the process.”

Beautiful…

He has also nominated 5 people to the Board of Directors and a proxy fight is on.

I first wrote about CC almost a year ago now and speculated it may be a good buy-out candidate. Not soon after that I backed off that claim after watching Schoonover & Crew’s various missteps and have since said that the company is still a good buy-out candidate, but not until current management is gone.

The WJS ran a piece Thursday that said “The company has a lot of financial commitments to stores in sub-par locations. Many retailers have gone the way of all flesh. It’s a precarious industry. Their former big box stores litter the landscape like giant ruins. Circuit City could certainly follow suit. The advantage of a $4.65 share price, as speculators are wont to joke, is that you know your downside. That’s even more true of the options. There is nothing wrong with taking a flyer, so long as you know that’s what you’re doing.”

Now, to a point the author is correct in that at $4.50 a share, the downside is minimal. But, unless you buy a bunch, so is the upside. Your profit or loss is based on what your total investment is, regardless of share price.

Whether a stock is $100 or $2, really does not matter, it is the dollar amount you buy that matters. If I by 2 shares at $100 or 100 shares at $2, my investment is the same.

All that being said, I may buy the day Schoonover leaves, but not a second before. Given the current economy and his track record, $4.50 is much more likely to become $2.50 than $6.50 in the near future.

If shareholders are lucky, Wattles gets his wish….

Disclosure (“none” means no position):None

↑ Grab this Headline Animator

Visit the ValuePlays Bookstore for Great Investing Books

This work is licensed under a Creative Commons Attribution 2.5 License.