Schafer: Schulze's main goals are already achieved

  • Article by: LEE SCHAFER , Star Tribune
  • Updated: February 23, 2013 - 4:42 PM
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Best Buy

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All of the financial advisers, lawyers, bankers and investors assembled for Best Buy Co. Inc. founder Richard Schulze’s effort to take the company private could be putting in long hours this weekend to meet a Thursday deadline for a proposal.

Schulze should thank them for their hard work and tell them to stand down.

That’s if his effort to put together a bid was really about what he said he wanted. If so, he already has most of it; that’s how much things have changed since August. And that leaves no compelling business justification for putting his net worth and reputation at risk by forging ahead with a transaction.

The case Schulze was making last summer, in letters to the board, was really about new leadership. He was justifiably worried about Best Buy’s performance and what he called “an erosion of its culture and values.” He wanted people at the top with the “retail experience, knowledge, insight and passion needed to win back customers, inspire employees and reinvigorate Best Buy’s trusted brand and culture of valued employees working together.”

He knew just the guys to put in charge — himself and former colleagues including former CEO Brad Anderson.

But if Schulze wanted a team leading Best Buy with retail experience, knowledge, insight and passion, he need not gain control of the company to install such a team. One appears to be working there right now.

It’s still very early in any turnaround, but analysts’ current praise for Best Buy’s team is remarkable, made all the more so when recalling that the August appointment of all-but-unknown hospitality executive Hubert Joly as CEO was not greeted with loud huzzahs.

It’s a deeper team than just Joly, with former Williams-Sonoma executive Sharon McCollam becoming Best Buy’s chief administrative and chief financial officer in December, former Expedia President Scott Durchslag taking over Best Buy’s online business in the fall and longtime Best Buy executives moving into new roles.

Stifel, Nicolaus & Co. analyst David Schick’s fresh “buy” on Best Buy’s stock was one of the upgrades last week, and he wrote that it was “first and foremost a management upgrade call.” Best Buy had been led by executives unwilling to look in the mirror or make tough choices, he wrote, and he called Joly’s November presentation to investors “the most honest assessment of [Best Buy] we have seen in 15-plus years.”

Schick’s thesis is that after Best Buy finished running Circuit City Stores into the ground in 2009, the company’s leadership under former CEO Brian Dunn got both arrogant and complacent. The Joly team has the opportunity to do three to five years’ worth of operational tightening in the next year or two. And Schick concluded “this management shift is amongst the closest to 180 degrees as we’ve ever seen.”

Schulze last summer once complained that “value is eroding every day,” and that’s a statement he just can’t make today. Best Buy’s stock price has recovered more than 50 percent from the recent low of $11.20 per share, and the company reported flat domestic comparable store sales in the critical nine-week holiday selling season. Flat is not up, but it sure beats down.

Of course, Schulze’s desire to lead a going-private transaction may have been about more than whether it’s better to be private when leading a turnaround or who could best lead it, arguments he didn’t put in any letters. He wrote not one word, for instance, on how he felt about being sent into exile last year.

Schulze was replaced as chairman in May 2012, and his service on the board was to end in June of this year. He would have been a roughly 20 percent holder of a company clearly in decline, with no real voice or any practical way to sell his shares. It’s no wonder he resigned to explore some course of action.

From frosty relations in the summer, the relationship between Schulze and Best Buy’s board appears to have gotten steadily warmer. And Schulze has already negotiated the right to nominate at least two members to the board of directors if he maintains his stake in the company and does not attempt to get shareholder support for a deal.

What that means is that Schulze can nominate himself to the board. He maybe can’t be chairman again, but he can take a seat at the board table. It’s hard to see how welcoming Schulze back to the board could be anything other than a positive development for the company.

If he rejoins the board, at the 2013 annual meeting he could even be thanked. There are more than just a couple of ways a founder passionate about a company can make a contribution to its continued success, and here Schulze has played the role of activist shareholder.

Active, yes, but active in a way that’s been measured and largely cooperative with the company, leading to the plan that culminates in next week’s deadline on a proposal. Perhaps he can agree that he’s done enough and can let it pass. By raising the possibility of taking the company private and insisting on decisive action, he should be credited for helping to accelerate change.

Call it a small win for a form of shareholder activism.

 

lee.schafer@startribune.com 612-673-4302

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