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As a longtime resident of the Forbes 400 list of wealthiest Americans, Richard Schulze must have been surprised that investors showed so little interest in his bid for Best Buy Co.
His first letter to Best Buy's chairman in early August outlined a bid of $24 to $26 per share. In the days that followed, the stock price was relatively stagnant, sitting below $20 a share. His second letter to the board late last week didn't offer much that was new, but the headline value of Schulze saying he wasn't going away stirred Wall Street, nudging up the stock nearly 5 percent to end the week at $20.27.
With a sizable price gap from the lower end of his bid and with the Best Buy board stiff-arming him, Schulze isn't looking like a credible buyer today. But a determined billionaire with a lifelong record of innovation and achievement is not somebody to underestimate.
"Why isn't he getting more respect?" said David Strasser, a senior analyst with the investment firm Janney Montgomery Scott. "We have been trying to track that down ourselves."
Strasser is a relative optimist about Best Buy and has argued that its same-store sales declines are largely related to product cycles in key categories rather than evidence that Amazon.com is running the company out of business. So while he disagrees with much of the naysayers' case against Schulze, Strasser ticked through the factors reflected in the market's ho-hum reaction to Schulze's bid.
First, there's the Minnesota business combination law, which rules out any sort of hostile acquisition and has other rules apparently getting in the way of Schulze forming an investment group.
Then, there's the prospect of former CEO Brad Anderson and former chief operating officer Allen Lenzmeier agreeing to join the 71-year-old Schulze in leading the company if he gains control.
"Can you have a bunch of senior citizens turning around this company? That's what the fears are," Strasser said.
But the biggest factor hurting Schulze's credibility is the increasingly negative sentiment in the investment community about Best Buy's long-term prospects, Strasser said. Public stock managers assume that private equity firms must be seeing the same thing, he added.
"People don't believe that this company has any value left whatsoever," Strasser said. "They are equating this [Schulze's bid] with some kind of death warrant, that all he is trying to do is get rid of his stock."
That view "is ludicrous," Strasser said. "We believe he's more than got the financing."
The Schulze team, very much aware that his bid isn't being taken seriously, has been quietly reaching out to stock analysts to discuss the financing. These calls have included representatives of Credit Suisse, Schulze's financial adviser, and perhaps even some private equity sources as well.
These conversations are obviously off-the-record, as Schulze's spokesman and the analysts will neither confirm nor deny than any such conference calls with analysts have taken place.
And for those skeptics curious about why Schulze would deliver a letter 10 days after his first one that said more or less the same thing, it's clear that Schulze wants to put pressure on the board to work with him by disclosing more and more about his plans.
Schulze's new letter said he is prepared to roll all of the Best Buy equity he controls, about 20.1 percent of the company's shares, rather than just $1 billion of it. He also restated that Credit Suisse remains "highly confident" it can arrange the debt financing and said Credit Suisse has received unsolicited calls from banks interested in joining in the deal.
"Dick is deadly serious," said analyst Colin McGranahan of Sanford C. Bernstein. "We are of the mind that he will do everything he can to be a buyer before he eventually becomes a seller. Which means that another bid is coming ... or maybe there is a private equity guy that lets Dick use their name."
Schulze has been reluctant to disclose his private equity prospects based upon his team's understanding of the constraints of Minnesota law, but Best Buy is of the view that he can identify his potential partners.
The Star Tribune reported that Schulze has obtained interest from private equity groups KKR & Co., Leonard Green & Partners, TPG Capital and Apollo Global Management. It's one advantage of being Dick Schulze that he has access to the kind of equity firms that routinely participate in multibillion-dollar deals.
As Strasser looks at trading in Best Buy stock since Schulze's last letter became public Thursday morning, he still does not see the kind of speculators who usually jump into situations where there is a credible bid that may lead to a takeover.
He suspects that the jump late in the week reflected the trading of funds that had sold Best Buy short. That's a trade that seeks to profit from a decline in price, and to close out a position an investor has to buy. So that's one investor group that has finally wised up that Schulze should be taken seriously, Strasser said.
"There is a very reasonable and legitimate chance he pulls this deal off."