Circuit City In Deal Talks with Two Parties

Circuit City Stores Inc. said on Friday it was in talks with two parties that could either buy the bankrupt electronics chain or provide additional financing.

Mexican retail and media entrepreneur Ricardo Salinas Pliego, who has built up a stake of at least 28 percent in the company, is conducting a thorough analysis of Circuit City , his spokesman said.

Steve Helber / AP A Circuit City store in Richmond, Virginia.

The aide would not say whether Salinas was one of the potential buyers, but said he was granted full access to Circuit City's books.

"We have sent experts there and have kept tight, intense talks with the company," spokesman Nino de Rivera said.

Salinas owns TV Azteca , Mexico's No. 2 broadcaster, and retail chain Grupo Elektra , which operates in Mexico, Brazil and Argentina among other places.

Circuit City gave no details on its negotiating partners, but said the parties had substantially completed due diligence and now were in talks to finalize a deal. The retailer's shares surged 69 percent to 27 cents afternoon trading.

"The fact that they pointed out that there were two potential bidders ... I think there's a decent chance that the company gets sold," said FTN Midwest Securities analyst Anthony Chukumba.

Circuit City filed for Chapter 11 protection in November, citing a deteriorating cash position and tighter terms from vendors. It has liquidated and closed 155 U.S. stores.

Earlier this week, Circuit City filed a motion with the Bankruptcy Court for the Eastern District of Virginia seeking approval of procedures that would formally put the company up for sale. The court made the motion public on Friday.

According to the motion, an auction of the company and its assets could start on Tuesday, with a sale hearing on January 16.

A Buyer with Deep Pockets?

Some watchers pointed to entertainment industry investor Mark Wattles as a potential interested party.

Wattles bought stores of the Ultimate Electronics chain out of bankruptcy several years ago and prevailed in a proxy contest with Circuit City last year that resulted in three of his firm's nominees winning seats on the board. James Marcum, one of those nominees, is currently acting Circuit City chief executive.

Wattles did not immediately return a call for comment.

Analysts said that, even if Circuit City is sold, it faces daunting challenges with recession and rising unemployment pressuring consumers. Rivals such as Best Buy Co Inc and discounter Wal-Mart Stores Inc are also stepping up their offerings.

"You've got many stores that are in lower quality real estate locations," said Brad Thomas, an analyst with KeyBanc Capital Markets.

Anyone who decides to buy Circuit City "better have a deep pocketbook and be prepared to face some significant losses for the next year or two," Thomas added.

The bankruptcy case is Circuit City Stores Inc, U.S. Bankruptcy Court, Eastern District of Virginia, No. 08-35653.

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