Best Buy Co. Inc. founder and ex-chairman Richard Schulze's quest to take his company private just got a little tougher.
After Thursday's annual shareholders meeting, where Schulze was barely mentioned, the board of directors changed its bylaws to require that an investor own at least 25 percent of the company's stock before he could call a special shareholders meeting to discuss a "change in control" or a takeover. Schulze owns 21 percent of Best Buy shares.
"There isn't any question" the board is trying to thwart Schulze, said Jacob Frankel, a former Securities and Exchange Commission official who specializes in corporate law at Shulman Rogers, a law firm in Maryland. "There are a number of takeover defenses a board can use. This is one of them."
Best Buy's previous bylaws required a shareholder to own at least 10 percent of the stock to call a special meeting for any purpose. Under that system, only Schulze could call special meetings on his own. The next largest investor after Schulze owns 7 percent of the stock.
In a statement, Best Buy said it boosted the requirement to 25 percent to conform to Minnesota law. However, the 25 percent threshold has been on Minnesota's books for at least 10 years.
The company declined to comment further.
Earlier this month, Schulze suddenly resigned from the board to explore "all available" options for his shares. While some analysts speculate that he may just dump his stock, Schulze would ideally like to take Best Buy private under new owners and management, according to sources close to the situation. He has already hired a prominent New York attorney and Credit Suisse, an investment bank that specializes in leveraged buyouts, to advise him, the sources said.
Analysts estimate that Schulze would need to offer investors anywhere from $10 billion to $12 billion to secure a deal. Anything less than that might prompt the board to reject his offer. In that case, Schulze could call a special meeting to make his pitch to shareholders.
In recent years, companies have scaled back their takeover defenses, also known as poison pills, due to pressure from institutional investors and corporate governance groups, said Tim Sullivan, a partner in the Chicago office of the Hinshaw & Culbertson law firm.
Indeed, Best Buy said on Thursday that it will comply with a nonbinding shareholder resolution to require that directors stand for election every year.
Best Buy previously had shareholders elect some directors one year and the remaining directors the following year. Such a system could prevent a takeover by making it harder for a buyer to replace the board all at once.
Under the new system, the entire board would be held accountable to shareholders every year. The move was a "demonstration of the company's commitment to transparency and strong corporate governance practices," Best Buy said in a statement.
At the same time, by changing its bylaws to make the calling of special meetings more difficult, Best Buy clearly is beefing up its defenses against a Schulze takeover, experts say.
Thomas Lee • 612-673-4113
