As Best Buy Co. Inc. CEO Hubert Joly prepares to head to New York next week for his first company meeting with Wall Street, investors have dealt the electronics retailers a major blow.
Shares sank Friday to a 10-year low, closing at $14.96, down 21 cents. The last time Best Buy's stock dropped below $15 was in late 2002. Its market value now stands at $5 billion compared with $9 billion a year ago.
On Thursday, the Richfield-based consumer electronics giant warned that third-quarter earnings would be "substantially lower" than the same period last year and that profit margins and sales at stores open for at least a year will continue to shrink.
That's a lot of material for any CEO to cover in one presentation. But Joly also will face a barrage of questions from investors about founder Richard Schulze's effort to take Best Buy private for $8 billion to $10 billion.
"With the possibility of a takeout is real, uncertainty builds as more time passes," Daniel Binder, an analyst with Jefferies & Co., wrote, in a recent research note. "As a public company, we think Best Buy could prove to be a challenging investment as it will potentially face a disruptive two- to three-year turnaround."
Best Buy declined to comment.
Joly's decision to hold an investors meeting at this time, coming so close to the deadline for Schulze to make a buyout bid, has puzzled Wall Street. Normally, companies announce an analyst day two months in advance, but Joly gave a week's notice. And while some analysts expect Joly to speak about a long-term turnaround strategy, some investors don't expect much, noting that Joly has been on the job less than two months.
Investors and analysts said Schulze's expected bid is forcing Joly's hand. Schulze is expected to offer as much as $26 a share, which represents a 76 percent premium over Friday's closing price.
Joly previously told the Star Tribune that his first priority was to stabilize the business, not necessarily craft a long-term strategy. But the company's deteriorating position, combined with a looming bid by Schulze, calls for Joly to say something, said Michael Robinson, executive vice president with Levick Strategic Communications, a consulting firm in Washington, DC.
Joly "needs to demonstrate he's committed to a strategy," Robinson said. "He needs to pick one and stick with it. If you don't identify a path forward, someone else will, but it won't be you."
That someone could be Schulze, who has recruited former CEO Brad Anderson and former chief operating officer Al Lenzmeier to help run Best Buy should they succeed in acquiring it.
A source close to Schulze, who requested anonymity because of the sensitive nature of the discussions, said Schulze's team has been interviewing people throughout Best Buy and will soon present a business plan to eight potential investors, including major private equity firms KKR, Cerberus, and Apollo Global Management.
With Schulze's bid expected around mid-November, the same source said Best Buy board director G. "Mike" Mikan recently traveled to New York to identify any alternative buyers beyond Schulze. As of Friday, the company has not confirmed or denied that.
Thomas Lee • 612-673-4113