Best Buy Co. (BBY:US) said it received no offer from founder Richard Schulze by the deadline yesterday and will continue to focus on its turnaround.
The deadline expired and Schulze didn’t make a bid, the Richfield, Minnesota-based retailer said in a statement today. The talks ended after Schulze and private-equity investors sought three board seats in exchange for acquiring a minority stake in the world’s largest consumer electronics retailer, two people familiar with the matter said yesterday.
Schulze, who had proposed acquiring Best Buy for $24 to $26 a share in August, wasn’t able to line up debt and equity financing, said the people who spoke on the condition of anonymity because the talks are private. Efforts by Schulze to negotiate a smaller deal with Cerberus Capital Management LP, TPG Capital and Leonard Green & Partners ended, the people said.
Schulze, Best Buy’s largest shareholder (BBY:US) with a stake of about 20 percent, had sought to take over the company he founded more than 40 years ago. He resigned as chairman in June and new Chief Executive Officer Hubert Joly has since stabilized sales while closing big-box stores, expanding smaller outlets and improving e-commerce operations.
Schulze “took his ego out of his pocket and put it on his sleeve and said, ‘I can run this company better,’” Michael Pachter, an analyst at Wedbush Securities in Los Angeles, said by telephone. “He couldn’t get other people to back him.” He recommends selling Best Buy shares.
Schulze may come back with a last-ditch proposal, although it’s unlikely, said one of the people.
In September, Schulze began studying the retailer’s confidential financial data. He worked with private-equity firms Cerberus Capital, TPG Capital and Leonard Green & Partners to arrange financing, people familiar with the matter have said.
“This is how the deal ends. Not with a bang, but with a whimper,” Erik Gordon, a business and law professor at the University of Michigan in Ann Arbor, said in an e-mail. “Schulze never made a compelling case for going private.”
Schulze has sought to take over Best Buy since late August, about two months after a probe found he failed to inform the board about allegations the CEO at the time was having an inappropriate relationship with an employee.
As part of their standstill agreement allowing Schulze to conduct due diligence, Best Buy committed to offer Schulze two board seats if he refrained from going directly to shareholders with a proposal or if he didn’t violate standstill provisions between the two parties.
Best Buy has climbed 38 percent this year after a 49 percent drop in 2012.
The shares sank as low as $11.20 in December and then recovered after Joly stabilized holiday sales with discounts and a policy of matching rivals’ prices.
Best Buy said earlier this week it eliminated 400 jobs at its headquarters as part of a reduction of about $150 million in selling, general and administrative expenses. The company said it plans additional cuts this year.
“Best Buy is taking the necessary steps to improve operations by cutting costs out and driving efficiencies,” Alan Rifkin, an analyst at Barclays Capital in New York, wrote in a note Feb. 19. He rates the shares to overweight, the equivalent of a buy.
Joly said in an interview in November that he’s also planning to boost Best Buy’s share of U.S. online sales from 7 percent to 18 percent, the market share of its stores.
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