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Best Buy shops set to shut. A general view of Carphone Warehouse's Best Buy store at Kingsway, Derby. More than 1,000 jobs are under threat after retailer Carphone Warehouse announced it was pulling the plug on its Best Buy stores in the UK. Picture date: Monday November 7, 2011. The company has launched a consultation about closing the 11 shops as it shifts its focus to selling more electronics goods through its Carphone Warehouse outlets. See PA story CITY Carphone. Photo credit should read: Rui Vieira/PA Wire URN:12021511

Rui Vieira, Associated Press

Richard Schulze

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RICHARD SCHULZE

The former Best Buy chairman has changed roles this year to shareholder and agitator. Investors are anxious to see what Schulze will do at Best Buy's annual shareholder meeting.

G. "MIKE"

MIKAN

Best Buy's interim chief executive has promised to unveil a long growth strategy but hasn't disclosed any specifics. But if Schulze moves to buy the company, it might not matter.

Schulze’s shadow hangs over Best Buy's annual meeting

  • Article by: THOMAS LEE
  • Star Tribune
  • June 19, 2012 - 9:04 PM

For all the talk of reinvention swirling around Best Buy these days, perhaps the most profound transformation has occurred in the most unlikely of people: Richard Schulze.

Over the past three months, the founder of the world's largest consumer electronics retailer has unexpectedly morphed from ultimate company insider and perceived protector of the status quo to a silent enigma. Earlier this month, Schulze suddenly resigned from the board to "explore all available options" for his 20 percent stake in Best Buy.

And the mystery surrounding Schulze could create quite a spectacle at Best Buy Co. Inc.'s annual shareholders meeting Thursday. While it's unclear whether Schulze even plans to attend, the stakes are high. After months of uncertainty about its leadership, declining sales and a falling stock price, investors are eager to hear who's really in charge and if the company has a more distinct vision for how it will thrive. (A spokesman did not return a phone call seeking comment.)

Schulze has remained mum about his plans. Some analysts suspect he will dump his shares, but Best Buy's ex-chairman and CEO is exploring a bid to take the company private, according to sources close to the situation.

Given its high price tag, a private buyout is highly unlikely. But Schulze, even in his silence, has already succeeded in forcing investors to take a long, hard look at Best Buy's future.

"He's certainly stirring things up," said Laura Kennedy, an analyst with Kantar Retail consulting firm outside of Boston. "He's got people thinking, 'What is the next step?'"

If anything, Best Buy's current leadership team, including interim CEO G. "Mike" Mikan, needs to give shareholders attending the meeting more details on how they plan to fix the struggling retailer, Kennedy said. Mikan has promised to unveil a long growth strategy but hasn't disclosed any specifics.

"If Mikan answers some questions about the future of the company, if he can give Phase II and Phase III [of his strategy], a solid next step, that will probably help," Kennedy said.

However, money speaks louder than words. Should Schulze and his allies offer $10 billion to $12 billion, or about $30 a share, for Best Buy, investors may gladly take it no matter what strategy Mikan and the board of directors cook up.

"Anything that says Best Buy stock is worth more is great for shareholders," said Michael Pachter, an analyst with Wedbush Securities in Los Angeles. "It's never bad for insiders to say the stock is undervalued."

Wall Street, though, doubts Schulze can pull off such a deal. He must persuade investors to buy a company that has struggled in the face of competitors like Wal-Mart and online retailers like Amazon.

"Best Buy has been 'cheap' for a while, and we haven't seen anyone step up and make a bid, which leads us to believe that many potential investors still fear the risk of [such] headwinds," Daniel Binder, an analyst with Jefferies & Co., wrote in a research note.

Kate McShane, an analyst with Citigroup, says Schulze has less than a 20 percent chance of taking Best Buy private.

But just mere talk of a takeover has helped shareholders. Since May, Best Buy shares jumped 13 percent to Tuesday's close of $20.23. More than 11 million Best Buy shares traded hands Tuesday, well above its normal volume.

Schulze doesn't necessarily need to buy the company to boost shareholder value. He could try to replace the board of directors and management team, or he could push the board to cut costs deeper and return money to shareholders faster by selling off assets.

Schulze's history, however, suggests he is less activist investor than proud entrepreneur, analysts say. His critics say he suffers from the same problem that inflicts many founding entrepreneurs: the inability to shrink the business because they are too attached to the company.

Of course, some founders rescued their once-troubled creations, such as Howard Schultz of Starbucks or the late Steve Jobs at Apple. But those companies and executives gained valuable perspective during their founders' absence, said Carol Spieckerman, president of Newmarketbuilders, a retail consulting firm. Schulze has been gone less than two weeks.

Thomas Lee • 612-673-4113

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