Richard Schulze's quest hasn't gotten any easier.
The Best Buy founder is pressing forward with his attempt to buy the struggling electronics retailer, despite an unsuccessful effort to get access to key financial data. But the arrival of a new chief executive, former Carlson boss Hubert Joly, gives the board even less incentive to sell.
Erik Gordon, a business professor at the University of Michigan, said the board's decision to hire Joly rather than pursue Schulze's initial offer of $24 to $26 a share means there's little chance it will sell without a much higher bid.
"His opening bid was too low, but I think the mistake was not reacting to the board's coolness by trying to quickly close the deal," Gordon said. "He can still make a deal. It just will cost him more."
Wall Street punished Best Buy on Monday, lopping 10.4 percent off the Richfield-based company's stock a day before its second-quarter earnings come out. Shares closed at $18.16, down $2.11.
While a falling stock price could make Schulze's offer seem more attractive, analysts believe a deal remains unlikely. Schulze needs billions in private equity and debt to buy the company, and potential partners would rather do a friendly deal than a hostile one, analysts said.
But Schulze hasn't given up, a source close to him said. The founder still believes that he, along with former CEO Brad Anderson and former COO Al Lenzmeier, have the experience and knowledge to quickly fix Best Buy's problems.
Assessing Joly's prospects
"Joly has some credibility," the source said. "But it will probably take him a long time to hit the ground running. Best Buy is much tougher than anything in his experience."
The source said Schulze and Anderson are meeting with their financial and legal advisers to find ways "to accelerate the timetable."
"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 discuss his buyout proposals. However, the move is not ideal because "you only get one shot."
Over the weekend, Schulze rejected a proposal from the company's board of directors to allow him to review the company's financial data in exchange for delaying any takeover attempt until 2013, should the board reject his bid. Schulze needs to see the financial data to attract private equity partners and make a formal offer.
As those negotiations fell through and the board announced Joly's hiring, investor attention narrowed on the true value of the struggling big-box electronics retailer. Its prospects are the key question for the board, Schulze, shareholders and Schulze's potential partners in a takeover.
"If they [the Best Buy board] counter that they will entertain offers at or above the same price, I think he can continue to work with them," Michael Pachter, an analyst with Wedbush, wrote in an e-mail. "Equity partners would clearly prefer a friendly deal, as they tend to be less expensive, so the dance will continue until he is forced to go hostile."
Pachter wrote that Joly is the "wrong guy to lead this company." Pachter and Anthony Chukumba, a senior equity analyst at BB&T Capital Markets, said the market's response to Joly's appointment as CEO helps Schulze's case. Skittish shareholders might be persuaded to sell at a price lower than they'd like rather than bank on Joly reviving the company.
"The market's underwhelming reaction to Joly's appointment certainly gives him a bit of ammunition," Chukumba said of Schulze.
However, Chukumba thinks Schulze's proposal undervalues Best Buy, and private equity will be concerned about wading into the acrimony between Schulze and the board. "The probability of a deal getting done is quite low," Chukumba said.
Star Tribune staff writer Thomas Lee contributed to this report.
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