Circuit City in talks with 2 ‘interested parties’

Circuit City Stores Inc., the troubled Henrico County-based home electronics retailer, today said it could be close to finalizing a deal to sell all or part of the company.

Circuit City, which filed in November for Chapter 11 bankruptcy protection, said it filed a motion with the federal bankruptcy court seeking approval of procedures that would formally put the company up for sale.

The request asks that Circuit City be approved for sale as separate business units or as individual assets — including the sale of inventory.

In a statement this morning, Circuit City said it is "engaged in significant discussions, meetings and negotiations with two highly motivated and interested parties" about a purchase of all or parts of the company.

Circuit City did not identify the two interested parties, but there is speculation that one could be Ricardo Salinas Pliego, a Mexican billionaire who is the company’s largest shareholder with about 28 percent of outstanding shares. He owns Latin America's largest chain of consumer-electronics stores.

The chain said both potential suitors are "considering providing additional financing to allow the company to sustain operations and move forward with a subsequent restructuring through a stand-alone plan and/or purchasing the company or all or substantially all of the company's assets."

The two are in the process of checking out Circuit City's financial books.

"While the company is optimistic that a transaction can be successfully finalized, no assurance can be given that this will occur," Circuit City said.

At a hearing that was slated to begin at 1 p.m. today, the company will ask a federal bankruptcy judge to approve a motion that sets procedures to sell itself.

The motion asks that its assets be auctioned off Tuesday, and a sale hearing be held next Friday.

If no such agreement is approved by next Friday, and the auction does not result in a sale of the company's assets, the motion provides that the company may enter into a transaction that will result in an asset liquidation process.

Such a sale would mark an end to a swift bankruptcy saga that has seen Circuit City lay off hundreds of employees since its Chapter 11 filing and complete liquidation sales in and subsequently close 155 domestic stores.

In morning trading, shares of Circuit City were trading at 26 cents, up 10 cents from where it closed on Thursday.

Earlier today, officials from Circuit City met with its creditors in a meeting that lasted less than 15 minutes and covered no new ground.

This morning's hearing ran short as the specter of a possible sale or liquidation hung over the proceedings. Bruce H. Besanko, the chain’s executive vice president and chief financial officer, declined to talk about company's plans.

During testimony, he said Circuit City ran into trouble in the fall as the growing economic troubles kept customers out of stores.

At about the same time, he said, vendors that supply the chain’s stores with merchandise began to tighten credit arrangements, making it difficult to continue doing business.

Asked what management decisions could have led to the company’s downfall, Besanko said it’s "not fair to criticize prior management."

He testified before Robert Van Arsdale, an assistant trustee for the court. About a dozen people attended.

The hearing at the federal courthouse in Richmond was held so Circuit City could talk to creditors about terms to settle outstanding debts.