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Best Buy takeover deal fails
March 03, 2013
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NEW YORK: Prospects of Best Buy Co going private ended when the retailer’s founder failed to strike a buyout deal with management, leaving the fate of the world’s largest consumer electronics chain in the hands of CEO Hubert Joly and his turnaround plan. Richard Schulze, a former chairman who last August made an informal bid to buy the company for 50 per cent more than its

current market value, had until midnight on Thursday to submit a formal buyout proposal to the retailer’s board. But he failed to line up necessary debt and equity financing, said a person familiar with the talks. The person declined to be named as the talks were private.

Schulze’s three private equity partners - Cerberus Capital Management LP, TPG Capital and Leonard Green & Partners - instead came forward with an offer to take a minority stake in the company and three seats on the board, said two sources familiar with the situation who asked to be anonymous because the talks were private. The proposed price of that investment at one point hit $1 billion.

Best Buy rejected the offer, saying the cost was excessive and dilutive to shareholders.

“We are moving on,” CEO Joly told Reuters, adding his team was focused on an overhaul that includes a host of efforts to boost sales and cut costs.

The resolution, along with better-than-expected quarterly results on Friday, brought some stability to a company that has been under a cloud of uncertainty for months while its 71-year-old founder stuck with his quest to take it private.

Schulze made the informal bid just months after he was forced out as chairman. An internal probe had found he had failed to tell the board about allegations of personal misconduct by then-CEO Brian Dunn.

The company founder has not yet decided whether to exercise his right to appoint two nominees to Best Buy’s board, he said in a regulatory filing on Friday.

“We viewed the Schulze buyout talks as a distraction,” said JV Bruni & Co portfolio manager Jerry Bruni. “The primary issue for us was what was actually going on at the company.”

In its first holiday season under Joly, Best Buy matched competitors’ online prices to tackle “showrooming,” the retail term for people visiting stores to look at products only to buy them online for less later. It also gave additional training to store workers and made a bigger push to sell online. “I’ve been increasingly encouraged by what we’re seeing,” Bruni said.

“The new CEO is off to a good start,” said Bruni, whose Colorado Springs, Colorado, firm owned about 337,000 Best Buy shares as of Dec.31. “They’re doing the right things and focusing on the right areas.”

Some investors liked Joly’s efforts to cut costs.

“If you can lower the cost structure, then you can lower your prices and become competitive in a very competitive industry while remaining profitable. I think that’s his goal,” said Frank Lombardi, a portfolio manager at Boston-based Cubic Asset Management which owns 150,000 Best Buy shares.


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