., Star Tribune
Can Hubert Joly save Best Buy?
- Article by: THOMAS LEE
- Star Tribune
- August 20, 2012 - 10:35 PM
Hubert Joly appeared ready for the question: Why would the successful CEO at Carlson take the top job at Best Buy, a retailer fighting off powerful Internet competitors and a takeover attempt by founder Richard Schulze?
"I'm not suicidal," Joly insists. "Rightly or wrongly, here I am."
Joly told the Star Tribune on Monday that he is fully prepared to confront the challenges that await him once he officially becomes Best Buy CEO in September. The world's largest consumer electronics retailer, homegrown in Minnesota, has been struggling in recent years to boost sales as it loses business to the likes of Wal-Mart and Amazon.
Schulze, who owns about 21 percent of Best Buy, wants to buy the company for about $9 billion so he can revitalize it with a management team of former Best Buy executives, including former CEO Brad Anderson. But negotiations between Schulze and the board of directors broke down over the weekend, as each side accused the other of not acting in good faith.
Joly, a French citizen who is described as a corporate fixer of sorts, said he took the job partly because he knew it wouldn't be easy.
"I like challenges," Joly said. "Given the turmoil [at Best Buy], it's easy to focus on its problems. But I'm impressed with its assets. We have the opportunity to write what could be an exciting new chapter here at Best Buy."
Wall Street, however, didn't share Joly's enthusiasm, as Best Buy's stock price fell by 10 percent. Some analysts are unimpressed with Joly's lack of retail experience.
"We find Mr. Joly's résumé unimpressive," Michael Pachter, an analyst with Wedbush Securities, wrote in a report. "He lacks sufficient experience to engineer a turnaround at Best Buy."
For the past four years, Joly was CEO of Carlson, a global hospitality and travel company based in the Twin Cities. He has been credited for turning around some of the company's major brands, including TGI Friday's, Radisson hotels and Country Inns and Suites.
Prior to Carlson, Joly led the restructuring of Vivendi's video game business (now part of Activision Blizzard) from 1999 to 2001. He later oversaw the integration of Universal and Vivendi's media assets in the United States. In the late 1990s, Joly helped lead a turnaround of EDS, a global technology services company now part of Hewlett-Packard.
"I have a bias for action," he said.
At an impasse
In some ways, investors and analysts say, the impact of Joly's appointment will be limited, so long as the board and Schulze remain at an impasse over his buyout attempt. No matter what Joly does, employees and investors will be distracted by the dispute.
The Best Buy board authorized its advisers to initiate discussions with Schulze on a cooperation agreement that would allow his team to review financial information that could lead to a formal offer. As part of its conditions for such a review, the board wanted Schulze to follow a "standstill agreement," whereby he wouldn't lobby Best Buy shareholders for their support until January.
Schulze contends it was Best Buy's board that terminated their talks. "The board initially proposed an 18-month standstill, which was completely unacceptable in light of the fact that urgent change is needed at Best Buy and value is eroding further every day that change is not effected," Schulze said in a statement released Monday.
A source close to Schulze's team said Schulze and Anderson are meeting with their financial and legal advisers to find ways to build momentum. "All options are on the table," the source said. "He hasn't ruled anything in or anything out."
One option, the source said, is to partner with a large institutional investor to call a special shareholders meeting to present his buyout proposal. However, the move is not ideal because "you only get one shot" at convincing investors to come aboard, the source said.
Matt Arnold, an analyst with Edward Jones, said the drama between Schulze and the board only lengthens the uncertainty surrounding the company. "This is not the usual stuff investors are accustomed to in a major corporation," Arnold said. "Best Buy shareholders are going to need lots of patience and a strong stomach."
The leadership turmoil at Best Buy began in April, when CEO Brian Dunn abruptly resigned amid allegations that he had an inappropriate relationship with a female employee. Schulze agreed to step down as chairman after acknowledging that he did not inform the board of those allegations. When Schulze resigned in early June, speculation began to build that he was planning a takeover bid for the company he started as a single store in 1966.
A representative at a major investment firm with Best Buy holdings said if Schulze is willing to pay significantly more than the current stock price, then shareholders should get a chance to consider the proposal.
"It's irresponsible for the board to prevent people from receiving a premium for their shares," said the representative, who requested anonymity because he was not authorized to speak to the news media.
As for Joly, the incoming CEO declined to discuss Schulze's tussle with the board, though he knows he could very well lose his new job should Schulze manage to acquire Best Buy.
"What I will say about Dick Schulze is that I have immense respect for what he built," Joly said. "As CEO, my job is to work for shareholders, and the last time I checked, Schulze is our largest shareholder. I will work hard to increase value for him and all of our shareholders."
Earlier this year, interim CEO G. "Mike" Mikan said he and the management team were developing a long-term growth plan they would release at the end of the summer. Joly was clear he would craft his own strategy to revitalize the company.
"The board was not going to impose a plan on me," Joly said. "The CEO, with the help of the board, is the one who sets a direction for the company. I've been aware that the management team has been working on a plan and I will embrace all of their good ideas."
Joly also promised to move swiftly to get Best Buy moving in a better direction. "I don't let grass grow under my feet," he said.
But analysts say it will take time for Joly to learn the business, which means any major turnaround effort at Best Buy won't really start for at least a few months.
"I don't see how he can really have an immediate impact," Arnold said. "He needs to get acclimated before any big decisions can be made."
Staff writer Patrick Kennedy contributed to this report. Thomas Lee • 612-673-4113
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