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Circuit City to liquidate, shutter stores
ATLANTA/RICHMOND, Virginia |
ATLANTA/RICHMOND, Virginia (Reuters) - Bankrupt electronics retailer Circuit City Stores said on Friday it will liquidate its assets and shutter hundreds of U.S. stores after failing to reach a deal to sell the company.
Circuit City is one of the largest retail bankruptcies in the current U.S. recession. Its demise paves the way for larger rival Best Buy Inc to boost sales and gain clout with suppliers as the leading electronics retailer.
U.S. Bankruptcy Judge Kevin Huennekens approved the plan to liquidate Circuit City, and the No. 2 retail player in U.S. electronics said it would begin closing stores on Saturday.
"Regrettably for the more than 30,000 employees of Circuit City and our loyal customers, we were unable to reach an agreement with our creditors and lenders to structure a going-concern transaction ... and so this is the only possible path for our company," Vice Chairman James Marcum said.
Private equity firm Golden Gate Capital and Mexican retail and media tycoon Ricardo Salinas Pliego, who owns more than 28 percent of the company, had indicated an interest in bidding for the company, Gregg Galardi, a lawyer representing Circuit City, told the bankruptcy court in Richmond.
Shares of the chain fell 77 percent to 3.5 cents. Shares of Best Buy, which analysts have said stood to gain longer-term if Circuit City went out of business, closed up 8.1 percent.
An evaluation of bids for Circuit City's Canadian unit is still under way, and it may seek to sell its website, Galardi said.
The company does not expect any value will remain from the bankruptcy estate for common shareholders. It has up to $1.3 billion in inventory to liquidate.
Circuit City filed for Chapter 11 protection in November, citing a deteriorating cash position and tighter terms from vendors. It recently closed 155 stores, and now has about 567 U.S. stores.
A group including Great American Group, Hudson Capital Partners, SB Capital Group and Tiger Capital Group won the auction to run Circuit City's liquidation.
During its auction this week, Circuit City sought a deal with Salinas to operate a smaller group of 180 stores, but that attempt failed as the retailer lacked necessary support from trade vendors and financing to continue operating.
Circuit City's liquidators will continue to accept gift cards throughout the liquidations, Galardi told the court.
BEST BUY'S GAIN
Anthony Chukumba, an analyst with FTN Midwest Securities, said although the demise of Circuit City could hurt Best Buy in the next few months, the Minneapolis retailer stands to gain a significant portion of sales in the long run.
He estimated that should Best Buy gain 30 percent of Circuit City store sales, that could add 50 cents in annual earnings per share over its next fiscal year.
"We think they'll get better pricing, more access to exclusive merchandise, better terms," Chukumba added.
Best Buy spokeswoman Sue Busch Nehring said in an email that her company would not project how any Circuit City store closings might affect its business.
"It does mark a sad day. We're sorry to see the stores close and employees move on," Busch Nehring wrote.
Circuit City, founded in 1949 when Samuel Wurtzel opened Ward's, the first retail television store in Richmond, stumbled as rising unemployment and tighter credit led consumers to cut back sharply on purchases beyond food and other staples.
Restructuring experts are expecting a wave of store closures and potential bankruptcies due to the recession.
Earlier this week, regional department store chain Gottschalks Inc filed for bankruptcy reorganization, and Goody's, a clothing retailer, said it plans to liquidate remaining stores in a return to Chapter 11.
The bankruptcy case is Circuit City Stores Inc, U.S. Bankruptcy Court, Eastern District of Virginia, No. 08-35653.
(Additional reporting by Cyntia Barrera Diaz in Mexico City; Editing by Dave Zimmerman, Brian Moss, Richard Chang)
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