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2nd UPDATE:Top Circuit City Hldr Urges Talks With Blockbuster

Apr.28, 2008 in Market Outlook

HBK Investments LP, Circuit City Stores Inc.’s (CC) largest shareholder, on
Monday urged the consumer-electronics retailer to allow due diligence by
Blockbuster Inc. (BBI) in connection with the video chain’s acquisition proposal.

The Dallas hedge fund also urged Circuit City’s board to create a competitive
bidding process in order to maximize shareholder value, saying the firm itself
might be prepared to offer financing for a Blockbuster acquisition.

HBK joins Circuit City’s third-largest shareholder, Wattles Capital Management,
in its call for more consideration of the Blockbuster proposal for the retailer,
which has struggled to turn around sales and profits for years.

Shares of Circuit City closed Monday at $4.53, down 15 cents, or 3.4%.
Blockbuster’s Class A shares closed at $2.98, down 4 cents, or 1.3%.

HBK manages more than $12 billion in equity capital and reported holding about
15.42 million shares of Circuit City, or a 9.1% stake in the Richmond, Va.,
company. HBK’s funds also beneficially own about 8% of Blockbuster’s Class A
stock and about 5% of Class B stock, according to a filing with the Securities
and Exchange Commission.

Earlier this month, Blockbuster proposed to acquire Circuit City for up to $1.3
billion, or at least $6 a share. Circuit City said it would evaluate the proposal
but said a “viable financing structure that is predictably executable by
Blockbuster given its current constraints of size and capital structure” is
necessary before the chain will allow further due diligence.

“We understand that Carl Icahn, or an affiliate, would finance the transaction,”
HBK said in a letter to Circuit City that was included in its SEC filing. “HBK
might also be prepared to provide financing for such a transaction, as we are
very optimistic about the future prospects of a combined company.”

HBK Capital said it has concluded that the combination of the two companies would
create significant value for all shareholders. It estimates $300 million in
increased earnings before interest, taxes, depreciation and amortization could be
generated through cost savings resulting from the deal.

A spokesman for Circuit City said directors will review the letter and respond
when appropriate.

HBK Capital said Circuit City should take Blockbuster’s offer seriously and
immediately provide access to due diligence information and commence good-faith
negotiations with Blockbuster.

“While we believe that an acquisition at a substantial premium to today’s share
price is in the best interest of Circuit City’s shareholders, there also may be
other parties interested in acquiring Circuit City or entering into a material
transaction with Circuit City that may provide even greater value to
shareholders,” the firm said. “As a result, we urge the Board to take the
necessary steps to create a competitive bidding process in order to maximize
shareholder value.”

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