Hubert Joly, CEO of hotel operator Carlson Cos., will take over in September, replacing interim CEO Mike Mikan, Richfield, Minnesota-based Best Buy said today in a statement. Schulze, who had been chairman, left Best Buy in June and is trying to purchase Best Buy for as much as $9.5 billion with the help of private-equity partners.
The appointment of Joly signals Best Buy plans to keep operating as a public company. Schulze declined an offer from the board to access confidential financial information, which would have required him to wait until January to take his bid directly to shareholders, Best Buy said yesterday. Schulze said he was still working on an acceptable agreement with Best Buy and was “shocked” by the company’s statement.
“The Joly hire shows the board’s commitment to turning the company around and gives it legal justification if it needs to enact stronger takeover defenses,” Erik Gordon, a University of Michigan business professor, said today in an e-mail. “Schulze missed a window of opportunity. If he had put a preemptively high, fully-funded offer on the table, he would have gained the support of the board.”
Best Buy declined (BBY:US) 6.7 percent to $18.92 at 10:02 a.m. in New York, after earlier dropping as much as 8 percent for the biggest intraday decline since July 11. The shares had dropped 13 percent this year through Aug. 17.
The board has “insufficient information to make a reasonable conclusion” on Schulze’s bid partly because of his failure to disclose financing and equity partners, Best Buy said in its statement. The retailer reports fiscal second-quarter results tomorrow.
In a letter last week, Schulze requested the board allow him to form a group to support his proposal to acquire Best Buy for $24 to $26 a share. Schulze, who held more than 20 percent (BBY:US) of Best Buy as of June, plans to contribute at least $1 billion in equity from that stake.
Joly, 53, said Best Buy’s more than 1,000 U.S. consumer- electronics stores and increasing online sales are “enormous assets” that will help rekindle growth.
“This company is a great American icon,” Joly said today in an interview. “It is a $50 billion company with enormous assets and a great brand name that can innovate and grow in this market.”
Since 2008, Joly has been CEO of closely held Carlson, a Minneapolis-based operator of hotels including Radisson and Country Inns & Suites. Previously, he held various roles at Vivendi SA and McKinsey & Co.
“I don’t know that this guy has the chops to pull this off,” Michael Pachter, an analyst for Wedbush Securities in Los Angeles, said today by telephone. He rates Best Buy as neutral and said investors have “no clue who Joly is. I’d rather they have hired a guy who runs a good retailer, not a hospitality company.”
Best Buy in April disclosed the departure of CEO Brian Dunn amid a board investigation into his “personal conduct.”
Best Buy’s board initially demanded that Schulze agree to a standstill (BBY:US) of 18 months during which he wouldn’t go directly to shareholders or call a special shareholder meeting, according to a person familiar with the discussions. After Schulze rejected that demand, the two parties continued negotiations over the weekend, said the person, who declined to be identified because the talks were private.
“We were in the process of negotiating an acceptable standstill period when, without notice to me or to any of my advisors, the board issued its announcement,” Schulze said in a separate statement.
An 18-month standstill agreement proposed by the board was unacceptable because the retailer needs “urgent change,” according to the statement. Schulze said he was disappointed by Best Buy’s termination of discussions and remains hopeful the board will engage in talks to protect shareholder interests. Bruce Hight, a spokesman for Best Buy, said the company won’t comment beyond its statement.
“The board proposals were offered in good faith, consistent with the board’s fiduciary duties to all shareholders and its commitment to good governance practices,” Best Buy said.
Schulze initially sought permission to conduct due diligence Aug. 6 when he proposed acquiring Best Buy. He’s recruiting executives including former CEO Brad Anderson to revive sales as Amazon.com Inc., Wal-Mart Stores Inc. (WMT:US) and other rivals have lured customers.
Best Buy said the board proposal would have allowed a waiver of Minnesota law in order to give Schulze the ability to work with private equity partners and a chance to bring a fully financed proposal within 60 days, according to today’s statement.
If sales are below estimates and margins really deteriorate, it could cause added pressure on the stock price, according to John Tomlinson, an analyst at ITG Investment Research in New York.
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