Best Buy Co. Inc. founder Richard Schulze has recruited four big-name private equity firms -- KKR & Co., Leonard Green & Partners, TPG Capital and Apollo Global Management -- to help bankroll his $8.8 billion plan to buy the company, the Star Tribune has learned.
Collectively, the group would provide $3 billion to $4 billion to back Schulze's bid, with the rest coming from debt financing and Schulze's own 21 percent stake in the Richfield-based company. Sources close to Schulze said he may also tap a strategic investor who, for example, might want Best Buy to sell certain products or services.
But to win over Best Buy's board, some analysts think Schulze will need to come up with more money, close to $10.2 billion, to compensate for the risks involved with restructuring the nation's largest consumer electronics retailer.
"We think Best Buy turns its nose up at $24 to $26 a share," wrote Daniel Binder, an analyst with Jefferies & Co. "We think an ultimate takeout bid would have to be in the high $20s to low $30s to give fundamental investors a large enough premium to forego the execution risks associated with what will likely be a complicated 2- to 3-year turnaround."
Best Buy, which has 7,500 Minnesota employees, has struggled to grow sales as more shoppers use its brick-and-mortar locations to window shop, then buy at Wal-Mart, Amazon.com and Apple stores. In response, Best Buy has sought to cut $800 million in costs over three years, mostly by closing 50 big-box stores.
The company also will announce plans soon to eliminate more than 1 million square feet of retail space, said a source close to Best Buy who was not authorized to speak for attribution. Most of the reduction will come from shrinking stores, but Best Buy will close more locations, the source said. The average store size is 37,000 square feet.
For the moment, though, Best Buy and Schulze remain at an impasse, stymieing any effort to advance a proposed bid. In a letter to the directors Monday, Schulze said the company has so far refused to let him examine Best Buy's financial information so he can make a formal offer.
"I am submitting this letter in the hope that, with a concrete proposal in front of it, the board will have a compelling basis on which to grant my requests and avoid further delay," Schulze wrote.
However, the source close to Best Buy said Schulze has not yet disclosed details to the board about how he plans to finance the buyout, including most importantly, the identities of his private equity partners. Schulze can still move another "one or two notches" to reach the point where the board will grant Schulze access to the company's books and enter serious negotiations, the source said.
Schulze's potential private equity backers have deep pockets, as well as experience in retail. Apollo has $105 billion in assets under management, and Leonard Green recently started another $6.25 billion private equity fund. The firm holds stakes in major retailers like BJ's Wholesale Club, Petco, Neiman Marcus, Rite Aid, and Sports Authority.
Thomas Lee 612-673-4113