ADVERTISEMENT

Richard Schulze

.,

Best Buy offer deadline postponed

  • Article by: THOMAS LEE
  • Star Tribune
  • December 14, 2012 - 11:12 PM

Best Buy Co. and its founder, Richard Schulze, have agreed to push back the deadline for Schulze to make an offer to buy the company, leading some analysts to speculate that Best Buy is more willing to make a deal.

Schulze has been pursuing the company ever since he was forced to step down as chairman in June. Since then, his dealings with Best Buy leadership have been tense at times. At one point, the company expressed skepticism that Schulze could make a credible offer, while Schulze accused executives of obstructing his efforts.

But this week, a new level of cooperation appears to have emerged between the Schulze team and the consumer electronics giant. They even announced the extension Friday in a joint statement, something that would have been unheard of just weeks ago.

"Both parties believe that allowing Mr. Schulze to bring his offer after the holiday season and fiscal year end is in the best interests of shareholders," Best Buy and Schulze said in the statement.

The agreement to push back the deadline, the second extension in two months, suggests a deeper commitment to see if a buyout would be a good deal for Best Buy and its shareholders, said Colin McGranahan, a retail analyst with Sanford Bernstein & Co.

"You can confidently conclude that Best Buy is absolutely open to an offer," he said.

Schulze was preparing to submit a multibillion-dollar offer for Best Buy this week, facing a "hard" deadline of Sunday. Instead, he can now make an offer any time between Feb. 1 and Feb. 28.

The news disappointed investors who had expected a formal proposal by the weekend after the Star Tribune reported Thursday that Schulze was ready to bid. After the deadline was extended, Best Buy shares plummeted nearly 15 percent to close Friday at $12.05. They had jumped nearly 16 percent the previous day.

Several Wall Street analysts speculated that Schulze likely needs more time to secure the financing that would lead to a stronger offer. A source close to the Schulze team, however, said it wasn't Schulze who asked for the extension.

Asked whether the company requested the extension, a Best Buy spokesman declined to comment on the matter, noting that both sides described the extension as a "mutual agreement."

Some analysts said it makes sense for Best Buy to extend the deadline because it allows Schulze and his investment team to review the company's fourth-quarter sales, which include the critical holiday season. A strong holiday finish could boost Best Buy's valuation and help leverage a higher offer from Schulze.

"The next 10 days are going to be the most important period," said David Strasser, a retail analyst with Janney Capital Markets. "There's a lot of time left in this quarter."

Why would Schulze want an extension? Analysts think Schulze and the private equity firms backing his bid, including TPG Capital, Cerberus, and Leonard Greene & Partners, would also like to see whether Best Buy can steady its operations before committing billions of dollars to the troubled retailer.

Best Buy has struggled to increase sales as more shoppers purchase televisions and personal computers on the Internet.

Schulze's investors "want to feel positive about the company, even if it costs them a little more money," said Laura Kennedy, an analyst with the Kantar Retail consulting firm in Cambridge, Mass.

Forced resignation

Not long ago, there wasn't much that was positive between Schulze and Best Buy.

In May, the Best Buy board, led by directors Matthew Paull, Hatim Tyabji, and G. "Mike" Mikan, forced Schulze to resign as chairman after it was determined that Schulze withheld information about allegations that then-CEO Brian Dunn had an affair with a female employee.

When Schulze announced this summer that he wanted to purchase Best Buy for $24 to $26 a share, the company initially denied him permission to form a buyout group as required by Minnesota law. The board also would not allow Schulze and his team to examine Best Buy's finances, calling his inquiries only a "highly conditional indication of interest."

Best Buy also approved changes to its bylaws that require a shareholder to own at least 25 percent of the company's stock before he or she could call a special shareholders meeting to discuss a "change in control" or a takeover. Schulze owns about 20 percent of Best Buy.

In August, the two sides struck a deal that would grant a 60-day window to prepare a bid. If the board rejected the initial offer, Schulze could offer a second bid in January.

Hubert Joly, who took over as Best Buy CEO in September, has worked hard to improve the company's relationship with Schulze. At the behest of the board, Joly arranged for Schulze's buyout team to speak to executives throughout the company.

Despite the warmer ties, many on Wall Street offered several reasons why Schulze couldn't pull off the deal: The price tag, which could reach $8 billion, was too big. Private equity investors would be unwilling to invest in a struggling retailer. Schulze failed to fix Best Buy's problems when he was in control, so why would he do better this time?

Schulze's team, however, has always insisted they had the money. The real unknown, they said, was the severity of Best Buy's struggles as reflected in the company's 45 percent stock plunge since July.

Sanford Bernstein's McGranahan believes Schulze has the necessary support from private equity investors, though they might have made it conditional on Best Buy steadying its finances.

"If Schulze doesn't have the money," McGranahan said, "why would the company grant him another extension?"

Thomas Lee • 612-673-4113

© 2014 Star Tribune