Wattles Files Proxy Statement Seeking Circuit City Management’s Ouster
The $7.1 million severance package Circuit City CEO Phil Schoonover could get if ousted “pales in comparison” with what his two-year tenure has cost shareholders, Mark Wattles and his Wattles Capital Management said in a preliminary proxy statement filed Monday at the SEC.
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Wattles, which last year acquired 6.5 percent of Circuit City, seeks shareholder backing for its four nominees and ouster of Schoonover and the chain’s board. The filing formally sets up a proxy battle for control of the chain. Shareholders are expected to vote on Wattles’ proposal at the annual meeting, June 24. Circuit City has urged shareholders to reject Wattles’ effort, saying it’s not in the company’s interest.
Under “change in control” provisions of his contract with Circuit City, Schoonover is in line for $3.6 million cash severance, $1.65 million in accelerated long-term incentives and $1.63 million from excise tax “gross ups,” Wattles said. Chief Financial Officer Bruce Besanko would get $4.9 million, including $1.8 million in cash severance. And former Chief Marketing Officer Peter Weedfald, who left the chain this year, would receive $3 million, including more than $884,000 in accelerated long-term incentives, Wattles said. “The company’s turnaround efforts led by Mr. Schoonover and his senior management team have resulted in a substantial decline in the company’s operating performance and significant loss of shareholder value,” Wattles said.
The filing restates many familiar Wattles positions, such as his demand that shareholders be allowed to consider a recent Blockbuster offer to buy Circuit City for $6 to $8 per share. Circuit City hasn’t given Blockbuster access to its financial records for due diligence, despite receiving an offer letter in February, Wattles said. Doubts about Blockbuster’s ability to finance a deal make due diligence pointless, Circuit City has responded (CED April 24 p8). Still, Blockbuster’s proposed Circuit City buy has the backing of billionaire investor Carl Icahn, Wattles said.
If elected, Wattles’ nominees -- Don Kornstein, James Marcum, Elliot Wahle and Anthony Bergamo -- would open “good- faith” talks with Blockbuster, Wattles said. The new board also would replace Schoonover and “develop and articulate a deliverable promise” for Circuit City’s “The City” format, Wattles said. Circuit City launched “The City” a year ago as smaller 20,000 square-foot concept in both renovated and new stores. The nominees also would focus on “customer experience” and strategies that make stores more productive, Wattles said. The nominees each get $50,000 cash when the nomination letter is submitted to Circuit City, Wattles said.
Laying groundwork for the annual meeting, Wattles met April 11 with Circuit City’s lead independent director, Mikael Salovaara, and Timothy Ingrassia of Goldman Sachs & Co., a financial adviser to Circuit City. Goldman Sachs was hired in the fall to help Circuit City sell it’s the Source By Circuit City stores in Canada.