Best Buy (NYSE: BBY) and its co-founder, and largest shareholder, Richard Schulze have agreed to extend the deadline on the Schulze buyout offer until after the holidays. The talks spurred a 15% jump in the company’s stock price yesterday, but news of postponing the consummation of the deal made the share price tank today, losing over 15% in early trading. Shulze’s made an initial offer in August that valued the company at about $8 billion, but rumors say he is revising his bid closer to the $5 billion to $6 billion range.
Best Buy issued a statement saying, “Both parties believe that allowing Mr. Schulze to bring his offer after the holiday season and fiscal year end is in the best interests of shareholders.” The market value of Best Buy’s stock is around $4 billion, based on today’s prices.
Going Private
Richard Shulze is no normal bidder and his plans are not a surprise to Best Buy management. Shulze co-founded Best Buy over 40 years ago and has seen the company through highs and lows over many years. With over 1,400 stores and more than $50 billion in annual revenue, the company is among the largest retailers in the U.S., still holding a place in the top ten in the 2012 Top Retailers List. Shulze believes that by taking the company private, he can focus on making strategy decisions without the constant short-term earnings pressure that are common for publicly traded companies.
Schulze is not in this alone. He has reportedly secured financing from a group of private equity investment firms and bankers. Among those rumored to be in on the deal are the Texas Pacific Group, Cerberus Capital Management and Leonard Greene & Partners. Shulze has been consulting with a team of advisors to develop his buyout plan including Best Buy’s former CEO Brad Anderson and the company’s former President Al Lenzmeier
Showrooming Has Taken a Toll
The company has had to bear the brunt of a phenomenon that has impacted many brick and mortar retailers. Showrooming has plagued many of these retailers and Best Buy has been hit particularly hard. Showrooming is the term that was coined to describe how consumers use retailers like Best Buy as showrooms to touch and feel products and get familiar with them, only to return home to make their purchases online where they are able to find lower prices.
Changes Abound
Best Buy has made major changes recently, announcing earlier this year they would close 50 U.S. stores and open 100 small-format Best Buy Mobile stores. The company has also had three CEOs this year. George Mikan stepped in this April to serve as interim CEO after Brian Dunn stepped down and then in August Hubert Joly was made CEO. Best Buy hoped that Joly would live up to his reputation as a turnaround expert and it paid a hefty price tag to get him. Reports said he would make over $15 million in 2013, not including stock he would get on top of his salary.
At What Price?
Although some institutional shareholders have said, they would consider selling their shares for as little as $16 to $19 a share, there is no reason to believe the company will sell for a price that low, especially considering that Shulze already bid in the mid-twenties in August. An analyst with Janney Capital Management, David Strasser, offered an opinion that seems to be typical of others on Wall Street, saying, “I don’t think a deal gets done unless it begins with the number 2.”
Onlookers Abound Awaiting Final Deal Outcome
The company employs over 100,000 people and has many investors, so there are many eyes watching to see how things unfold for Best Buy. It will be interesting to see what the future holds for this big kid on the retail block.
