HBK urges Circuit City to allow Blockbuster's due diligence, may offer finance, calls for competitive bid

By Lisa Kerner

Charlotte, N.C., April 28 - Circuit City Stores, Inc. investor HBK Capital Management urged the company to allow Blockbuster Inc. to perform due diligence in connection with Blockbuster's proposal to acquire the company.

HBK also said it may help Blockbuster finance its offer and additionally called on Circuit City to invite other offers for the company.

On April 14, Blockbuster said Circuit City failed to allow it to carry out due diligence following its Feb. 17 offer to acquire Circuit City for at least $6 per share in cash.

HBK, in an April 28 letter to the company, said it also wants Circuit City's board of directors to create a competitive bidding process in order to maximize shareholder value.

The letter was included in a schedule 13D filing with the Securities and Exchange Commission.

According to the filing, funds managed by HBK beneficially own about 9% of the issued and outstanding common stock of Circuit City as well as some 8% of the class A common stock of Blockbuster and 5% of the class B common stock of Blockbuster.

If Blockbuster withdraws its offer because of a lack of cooperation by Circuit City's board, HBK believes Circuit City shareholders "will be immediately and substantially damaged."

While Carl Icahn or an affiliate is expected to finance the transaction, HBK said it may also provide financing for a Blockbuster/Circuit City deal, since the investor is "very optimistic about the future prospects of a combined company."

Another Circuit City shareholder, Wattles Capital Management, LLC, had also asked Circuit city to provide Blockbuster access to due diligence information and begin good-faith negotiations about a merger, it was previously reported.

Wattles cited the fact that Blockbuster is not a competitor, its board supports the offer and the willingness of Carl Icahn or an affiliate to finance the deal.

Goldman, Sachs & Co., Circuit City's financial adviser, believes Blockbuster cannot consummate the proposed transaction in "light of the difficult current financing environment," Circuit City said in a prior news release.

According to Circuit City, it is waiting for a "viable financing structure that is predictably executable by Blockbuster" before it will allow further due diligence.

Circuit City is a Richmond, Va.-based electronics retailer.

Dallas-based Blockbuster operates and franchises entertainment-related stores, featuring pre-recorded videos and video games for in-store rental, sale and trade.

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