Matthew H. Paull
2 exits from Best Buy's board will help Schulze
- Article by: THOMAS LEE
- Star Tribune
- December 31, 2012 - 9:03 PM
Best Buy Co. directors G. "Mike" Mikan and Matthew Paull are stepping down from their leadership roles with the company, moves that observers say will make it easier for founder Richard Schulze to acquire the retail giant.
Paull and Mikan were among the directors who pushed for Schulze to step down from Best Buy's board of directors last spring. Since then, Schulze has been working to buy the struggling consumer electronics retailer and has until the end of February to make what is expected to be a multibillion-dollar offer.
Given Paull's and Mikan's contentious relationship with Schulze, their departures from the board should lead to smoother negotiations as Schulze prepares a formal bid, said David Strasser, a retail analyst with Janney Capital Management.
"I think the circumstances of who they are makes [their departure] less than coincidental," Strasser said. "There is a better chance of a deal."
Mikan's resignation was effective Dec. 26, the company said Monday in a regulatory filing with the Securities and Exchange Commission. Paull will continue to serve until April.
A source close to Schulze said the former chairman and CEO believes Paull and Mikan would have tried to block a Schulze takeover or at least made negotiations more difficult. The exits "will help the deal beyond all doubt," the source said.
Mikan's departure was not completely unexpected. The ex-UnitedHealth executive served several months last year as Best Buy's interim CEO and was considered the front-runner for the permanent job. But the board passed over Mikan in favor of former Carlson CEO Hubert Joly.
Instead, Mikan will become president of ESL Investments, a hedge fund run by billionaire Eddie Lampert that owns Sears/Kmart.
"Due to his new responsibilities and time requirements, [Mikan] believed it was necessary to step down," Best Buy said in its filing with the SEC. The company and board declined interview requests.
Paull, a former chief financial officer at McDonald's Corp., will retire April 20, Best Buy said, citing a policy that requires directors to quit if they do not have a full-time job after five years with the company. Director Rogelio Rebolledo retired last June under similar circumstances.
"Board resignations are routine and a normal course of business, in fact our Board policies required Mr. Paull's resignation in 2013," Best Buy spokeswoman Amy von Walter said in an e-mailed statement. "Our remaining Board members are highly experienced business leaders who are committed to the success of Best Buy and who will continue to act on behalf of our shareholders' best interests."
When Paull leaves Best Buy, the company will have four vacancies on the 11-member board. The process for filling the posts will play out differently than it would have in the past.
Last month, the company changed its bylaws so that shareholders, including Schulze, could nominate directors between Feb. 15 and March 15, which roughly coincides with the deadline for Schulze's buyout offer. Previously, the nominations were due last November, 150 days after the last annual shareholders meeting. Under the company's original due diligence agreement with Schulze, Best Buy would grant Schulze the right to appoint two directors to the board, which could give him more influence over the board.
But Schulze would pursue that option only if he couldn't complete a deal to buy the company, said the source close to Schulze. Filling the board seats "is Plan B," the source said. "But no one is even thinking that right now. We're keeping our powder dry."
Colin McGranahan, an analyst with Sanford Bernstein & Co., said Mikan's and Paull's resignations give Schulze a stronger hand as he pursues the company. "It's a positive for Schulze since some of the people who pushed him out will no longer be there," McGranahan said. "You now have fewer ... to convince."
The departures of Mikan and Paull cap what has been a difficult year for Best Buy's board, which forced Schulze last spring to step down as chairman and eventually leave the company. An outside investigation had determined that Schulze failed to inform the board of allegations that then-CEO Brian Dunn had used company resources to carry on an affair with a female employee.
The founder felt betrayed by the directors, many of whom he recruited, and he singled out Mikan as one of the directors who led the ouster, sources said.
In August, Schulze, Best Buy's largest shareholder, said he wanted to buy the company for $24 to $26 a share and recruited former CEO Brad Anderson and former President Al Lenzmeier to help lead the effort.
At first, the board appeared to resist Schulze, calling his effort only a "highly conditional indication of interest." The board, which doubted Schulze could get the financing, denied his request to review the company's confidential financial information. The directors also changed the company bylaws so that shareholders must control at least 25 percent of the stock before calling a special shareholders meeting to discuss a change in ownership. Schulze owns about 20 percent of Best Buy.
But after Joly became CEO and a director in September, the board's stance toward Schulze seemed to soften substantially. The board and Joly arranged for Schulze's team to interview key employees throughout the company. In November, the company granted Schulze's request to extend the buyout offer deadline until mid-December.
Schulze was preparing to make an offer to the company by Dec. 16, the date sources outside and inside the company described as the final deadline. At the last minute, the board requested, and Schulze agreed, to extend the deadline to the end of February, according to a source with knowledge of the negotiations. That way, both sides could review the company's full-year financials, including the key holiday shopping season, which would offer a more complete picture of the company's value.
Thomas Lee • 612-673-4113
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