Will Circuit City join the long list of electronics retailers, like Tweeter Home Entertainment and Harvey Electronics, that have filed for Chapter 11 bankruptcy protection in the past year? Given that shares of the Richmond [Va.] company are trading at just over 2, Wall Street is betting that could be a possibility. "Circuit City is in very serious trouble, and any scenario is possible today," says Nick McCoy, senior consultant at TNS Retail Forward, a research firm.
Circuit City's market capitalization currently is a mere $368 million -- pocket change for a large private equity firm. But buyers are not lining up and have clearly concluded that the chain's problems won't be easy to resolve. On July 1, beleaguered movie-rental company Blockbuster effectively delivered a slap in the face to the nation's second-largest electronics retailer by withdrawing its proposal to acquire Circuit City. "Based on market conditions and the completion of our initial due diligence process, we have determined that it is not in the best interest of Blockbuster's shareholders to proceed with an acquisition of Circuit City," said Blockbuster Chairman and CEO Jim Keyes.
Plenty of Cash
Blockbuster's move sent Circuit City's stock tumbling a further 15 percent, to $2.14 a share, on July 2.
Now, even if a private equity player decides to buy Circuit City, there's speculation that the buyout might take place under a Chapter 11 reorganization plan. Such a filing could certainly take care of a key problem that CEO Philip Schoonover has often pointed to, which is that many of the company's 682 stores are in poor and underperforming locations, and would be expensive to close because they have long-term leases.
A potential buyer can take advantage of a special provision of the U.S. bankruptcy code, called Section 363, allowing it to sell assets and get out of leases...

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