Best Buy Buyout? Why Founder's Bid May Be Retailer's Best Bet

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Best Buy BuyoutA private buyout of Best Buy (BBY) may not be such a crazy idea after all.

Sources are telling The Wall Street Journal that founder Richard Schulze -- who stepped down from his roles as company chairman and director earlier this month -- is working with a Wall Street investment banker to take the struggling consumer electronics giant private.

It's not exactly a layup. Schulze only owns 20% of the company. He has to find enough willing investors -- likely among the ranks of private-equity firms -- to bankroll the purchase of the shares that he doesn't already own.

Another sticking point may be a matter of price.

Shares of Best Buy dipped into the high teens for the first time in more than three years last month. You would think that frustrated shareholders would relish a shot at an exit strategy, but the company's board may hold out for too rich of a premium.

Best Buy's battered stock popped nearly 5% higher on Tuesday after the Journal's story broke. The higher the speculative trading goes, the harder it will be for Schulze to raise the money he needs at an agreeable price.

Schulze Makes Sense in Leading the Charge

There isn't any publicly traded company that would be willing to expose itself to the scrutiny that would accompany buying a struggling retailer with what may be a broken model. Private-equity firms have greater leeway in their purchases, but they are typically only interested in buying growing companies or turnaround situations that they can unload for more money in the future.

Best Buy fails on both counts. It has closed dozens of its superstores in recent weeks, and there's no reason to believe that the showrooming trend that's transforming former customers into online shoppers is going to end anytime soon.

However, Schulze has every reason to believe in the company that he created decades ago.

Schulze can't be happy with the company's board, which chastised him for failing to rat out then-CEO Brian Dunn after he learned that the executive was having an inappropriate relationship with an employee that violated the retailer's policy.

Schulze was supposed to simply step down as the chairman after completing his term, but he left the board abruptly earlier this month.

Investors initially feared that he would dump his 20% stake in the company -- creating the potential for the stock to head even lower as supply drowned out demand -- but now it seems as if he may be more interested in finding a way to get the other 80% of the company back.

Given the many challenges that await Best Buy, the board better not get too cocky if Schulze is able to pull together an offer to take the company private. Circuit City's board rebuffed a couple of buyout offers, too -- and as we're all aware, that ended badly.



Longtime Motley Fool contributor Rick Munarriz does not own shares in any of the stocks in this article. The Motley Fool owns shares of Best Buy.


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B

They may as well put Obama in charge since he has experience in shutting down businesses.

August 23 2012 at 8:06 PM Report abuse rate up rate down Reply
B

They may as well put Obama in charge since he has experience in shutting down businesses.

August 23 2012 at 8:06 PM Report abuse rate up rate down Reply
B

They may as well put Obama in charge since he has experience in shutting down businesses.

August 23 2012 at 8:06 PM Report abuse rate up rate down Reply
rflulling

So now that people know the founder is trying to buy up the company the price will jump to the point where its impossible for him to buy it out. Eventually the company will go bankrupt and there will be nothing he can do but sit and watch as the board plunges whats left of the company as deep into the ground as they can then struggle to the surface hoping to not have their own heads removed in the process.

July 06 2012 at 8:24 PM Report abuse rate up rate down Reply
great stuff shop

FOR THE STUPID REPUBLICAN, DON'T PUT GOD IN YOUR STUPID MOUTH. SAY IT AGAIN AND I WILL TELL YOU THAT YOU ARE A LIER, BUSH MESS UP THIS COUNTRY AND USED UP ALL THE MONEY SITTING IN RESERVE AND SINKED THE COUNTRY IN THE GROUND AND OUR NOW PRESIDENT IS TRYING TO CLEAN UP THE MESS BUSH LEFT THE UNITED STATES IN WITH LITTLE OR NO HELP FROM CONGRESS, I COULD TALK ON BUT THE TALK ABOUT BUSH MESS UP WOULD TAKE TOO LONG, SO YOU BETTER NOT GET ME TALKING, OK.

July 03 2012 at 5:29 PM Report abuse rate up rate down Reply
Pittman Ken

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July 02 2012 at 10:04 PM Report abuse rate up rate down Reply
victorzeller

NOTHING will help Best Buy until they change their ways. Lousy customer service. Sales people that don't have a clue. The lame restocking fee. All of this adds up to doom for BBY.

June 28 2012 at 10:10 AM Report abuse rate up rate down Reply
n5monthsocrapleft

NAZI PIGLOSI'S STOCTON CALIFORNIA WILL FILE BANKRUPTCY ON FRIDAY , THE MUSLIM CLOWN WILL SOON HAVE THE WHOLE FARKIN COUNTRY IN BANKRUPTCY SOON . ! ! ~~"ROMNEY / 2012 ~GETTING AMERICA BACK TO WORK. ! !

June 28 2012 at 9:53 AM Report abuse +1 rate up rate down Reply
2 replies to n5monthsocrapleft's comment
Myriam

Back to work were. All Mitt is going to do is take the last job standing and send it to India, China, Philipines or where ever overseas so his contributors profit by billions. The soup line will start in Florida and run straight thru every state.

August 24 2012 at 12:40 AM Report abuse rate up rate down Reply
Myriam

Back to work were. All Mitt is going to do is take the last job standing and send it to India, China, Philipines or where ever overseas so his contributors profit by billions. The soup line will start in Florida and run straight thru every state.

August 24 2012 at 12:47 AM Report abuse rate up rate down Reply
GOD BLESS AMERICA

Thank U Gene and Peg the people who keep saying bush are the ones who are all in a box. That is the term used for Democrats, they ran the house and senate under Bush so what the hey, BLAME BUSH IS AN UNDERSTATEMENT it is blame DEMOCRATS THEY RAN THINGS.
I have learnt that when i talk politics 1 min. to any one I can tell you if they are a Democrat. They only see in the box they can not see over the top or on the out side if any thing Get rid of the word Democrat they wouldnt' know how to vote.

June 28 2012 at 8:59 AM Report abuse rate up rate down Reply
Gene and Peg

No one mentions that the Democrat party took over complete control of both houses of Congress in January 2007 and retained that control for 4 years. I'm surprised that charges of deliction of duty have not been brought against both the AG and the pres. What's next?

June 28 2012 at 7:40 AM Report abuse rate up rate down Reply