Circuit City Stores Inc. on Monday declined a $3.25-billion takeover offer from Highfields Capital Management, saying the deal would not be in the best interest of its shareholders.
The electronics retailer said its directors unanimously chose not to further explore Highfields' unsolicited $17-a-share bid or any other sale alternatives.
Instead, its board decided the company could maximize shareholder value by continuing to implement strategic, operational and financial initiatives.
"The board, management and our more than 40,000 associates are focused on that goal by improving our operations and identifying innovations that can enhance our competitive position," said W. Alan McCollough, Circuit City's chairman and chief executive. "Rewarding our shareholders for their confidence in us has always been, and will continue to be, our highest priority."
Analysts said the rejection came as no surprise. Circuit City had lost market share to Best Buy Co. and continues to report disappointing sales. Boston-based Highfields, which submitted the offer last month, is known for its efforts to shake up management at underperforming companies.
"It appears that the offer from Highfields was somewhat motivated by a desire to instigate management to make some changes, and it looks like that's already occurring," said Colin McGranahan, an analyst at Bernstein & Co. in New York.
McGranahan said Highfields made the offer out of "a desire to make their views publicly and painfully known."
With little debt and more than $750 million in cash, Circuit City has been considered ripe for takeover. The company turned down a bid of $8 a share from Mexican tycoon Carlos Slim in June 2003.
Circuit City still believes it is worth more than it has been offered, McGranahan said.
"The company has a strategy in place to significantly increase the profit of the business," he said. "If they can execute that strategy, the company should be significantly more valuable than $17 per share."
Circuit City has made some management changes, including replacing McCollough with Philip J. Schoonover as president. The board also announced Monday that it would double, to $800 million, the amount of its shares it would repurchase.
About a decade ago, Circuit City was the nation's largest chain of consumer electronics stores. But Richfield, Minn.-based Best Buy, with prime locations and a sharp focus, overtook its rival in the mid-1990s. Best Buy has even profited in Richmond, Va., Circuit City's headquarters city, drawing crowds to its larger stores.
Circuit City has sought to turn around its business by redesigning older stores and relocating poor performers, but the retailer has been unable to catch Best Buy. Circuit City lost $89.3 million on $9.75 billion in sales in its fiscal year ended Feb. 29, 2004.
Highfields, which holds a 6.8% stake in Circuit City, made its offer after meeting with McCollough to express dissatisfaction with the retailer's lagging performance. Highfields said it was disappointed in the board's decision but remained willing to negotiate a transaction.
Circuit City shares rose 13 cents to $16.25 on the New York Stock Exchange.