May 9, 2008 3:33 PM PDT

Activist investor says Circuit City could be sold in two months

Posted by Erica Ogg

If Circuit City gets sold anytime soon, it probably won't be to its chief suitor, Blockbuster, according to one of the electronics chain's most vocal investors.

In an interview with TWICE magazine Friday, Jim Wattles, owner of Wattles Capital Management, which owns 6.5 percent of Circuit City shares, said a sale could happen in the next two months. Wattles also said that Blockbuster, which bid roughly $1 billion for Circuit, isn't the only interested party, and in fact, the likely future buyer will be a private equity firm.

So, essentially, the company has options. It was revealed Friday morning that it has retained Goldman Sachs to look at other opportunities for acquisition besides Blockbuster. And another famously vocal shareholder, Carl Icahn, let it be known that if Blockbuster can't make good on its bid, he's interested.

Wattles comments to the magazine come a few weeks after Blockbuster's bid became public and he sent a letter to the retailer's chairman encouraging him to allow Blockbuster to at least kick the tires. Circuit City was, at the time, resisting allowing Blockbuster a look at its books, necessary to make a complete acquisition offer.

Not that he's soured on Blockbuster. On the contrary, he praised Blockbuster's hiring practices and employee training.

He's probably the only one. Sure, investors are unhappy, but the combination of two different retail companies with different cultures, products, and business models, is a disaster waiting to happen. In concept, it's great: selling hardware and content together. In execution? It's unclear how this could ever work.

Apple's iPod and iTunes combination is a tantalizing example of the possibilities a tie-up like this could represent. So is Amazon.com, with its Kindle e-book reader and e-books. But the difference, according to consumer electronics and retail analyst Stephen Baker, of the NPD Group, is that both of those occurred organically.

"Amazon and Apple did everything natively. It was an extension of what they were already doing," he said. "This is bolting pieces on."