ATLANTA/MEXICO CITY (Reuters) - Circuit City Stores Inc CCTYQ.PK received court approval on Friday to put itself up for sale and said it was in talks with two undisclosed parties that could either buy the bankrupt electronics chain or provide additional financing.
A ruling by U.S. Bankruptcy Court Judge Kevin Huennekens will let the company proceed with an auction of the company and its assets beginning on Tuesday, with liquidation possible if no sale occurs. Another hearing is set for January 16.
A lawyer for Circuit City said the company hopes to have a going concern buyer in place by the end of Wednesday and be able to present a financing deal by the next court date.
Chief Financial Officer Bruce Besanko would not identify the negotiating partners on Friday, but said they were strategic and financial buyers. The company said the parties had substantially completed due diligence and now were in talks to finalize a deal.
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.
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 after agreeing not to buy more shares without first notifying the company and U.S. authorities.
“We have sent experts there and have kept tight, intense talks with the company,” spokesman Nino de Rivera said.
Circuit City shares surged nearly 15 cents, or 90.6 percent, to close at about 31 cents on Friday.
GOOD CHANCE FOR A DEAL?
Besanko, who spoke at a hearing in Richmond, Virginia, on Friday, said the retailer was “optimistic and hopeful” for the company’s future.
“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 stores, about one-fifth of its U.S. store base.
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 won his firm’s nominees three 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 BBY.N and discounter Wal-Mart Stores Inc WMT.N 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.
Circuit City also said in a federal filing on Friday that it expects an operating loss and a net loss for the quarter and nine months that ended November 30.
In a Securities and Exchange Commission filing, the retailer said losses could be “significantly greater” than prior-year periods because of charges tied to its Chapter 11 proceedings, store closings and sales declines. The company added it did not know when it would file the quarterly report.
The bankruptcy case is Circuit City Stores Inc, U.S. Bankruptcy Court, Eastern District of Virginia, No. 08-35653.
Additional reporting by Martinne Geller in New York; Editing by Lisa Von Ahn and Andre Grenon
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