A rising tide lifts all boats, and in the case of Best Buy founder Dick Schulze, it's not bad for foundations either.
Schulze has benefited in recent months from the strong rebound in the price of Best Buy shares as he methodically reduces his ownership stake in the company to fund his family's foundation to the ambitious tune of $1 billion.
In 16 separate sales since Labor Day, Schulze has exercised trades worth $204 million at per share prices ranging from $37 to $43, up from a low of just $11.29 a share 11 months ago.
The surge in the big-box retailer's share price has occurred under the watch of CEO Hubert Joly, who was selected to run the company more than a year ago in a management and board coup that put Schulze on the outs with the company for a time before he made up and assumed a role as chairman emeritus last March.
Since then, an aggressive cost-cutting program along with broad product promotions and reconfigured store floor plans has fortified Best Buy's leadership position as a purveyor of electronic consumer goods.
The Richfield-based company is scheduled to report third-quarter earnings on Tuesday and Wall Street anticipates further favorable news. Of the 28 analysts who cover Best Buy, 16 have buy recommendations on the stock and seven have a target price of $50 or more. Shares closed Friday at $43.69.
Schulze's trades were executed both for unspecified general purposes and pursuant to Schulze's previously stated plan to divest shares for the Richard M. Schulze Family Foundation.
Schulze, who owns 61.5 million shares of Best Buy, or 18 percent of the company, is still a long way from the $1 billion mark for his foundation although he appears to be in no hurry to reach that goal. After selling 5.1 million shares in recent weeks, he remains the company's largest shareholder.
"The foundation won't be at $1 billion or full maturity for about five years," said Mark Dienhart, the former executive vice president and chief operating officer of the University of St. Thomas who now runs the foundation. "Dick clearly has a great relationship with Hubert Joly and management at Best Buy right now, and he doesn't want to do anything that would adversely affect the company. This is a very nuanced thing."
That Schulze announced his divestiture plan in Securities and Exchange Commission filings before he embarked on it and the fact that his stock sales are methodical and periodical seems to have satisfied the stock market, given the rising share prices in recent months.
"It's smart to not disrupt the market and to make sure the market understands your motivation," said John Stout, an attorney for the Minneapolis firm Fredrikson & Byron who specializes in corporate governance issues. "Your concern is not only the message but also how the market absorbs large amounts of shares."
Indeed, when activist investor and hedge fund manager William Ackman dumped his entire 18 percent stake in J.C. Penney Co. last August, his move immediately sent the retailer's already-depressed stock spiraling down an additional 2.6 percent to $13 a share. Today it is trading at just under $9 a share.
"Anyone with a large block of stock in a public company has to be concerned about issues of value," Stout said. "Schulze's sales are being read as not having anything to do with a lack of confidence in the company or the team. This is an exercise in cautious responsibility."
The Schulze family foundation probably will reach $100 million by the end of this year and $200 million by the end of 2014, Dienhart said. The $1 billion goal will probably be achieved over a five-year period.
The foundation will focus on education, health and health care and human services.
A new foundation board has so far met once. In addition to Schulze and his wife, Maureen, members include former Best Buy President Allen Lenzmeier, former University of Minnesota President Robert Bruininks, venture capitalist Ann Winblad, Kevin Bergman, who runs Olympus Ventures, and a seat that will rotate among the Schulze children. Dienhart is also on the board.
"There's a lot of stuff to be decided," said Dienhart, who became executive director of the foundation in July. "We're just getting our legs under us."
But the foundation's doorbell has already started to ring with inquiries from organizations looking for grant funding.
"A lot of folks are in contact with us and we're trying to be as helpful as we can. While we will be sizable downstream, we have to remind them we are not there right now."
Staff researcher Patrick Kennedy contributed to this report.
David Phelps • 612-673-7269
