Take the Money and Run, Best Buy Investors
Aug 6th 2012 11:37AM
Updated Aug 6th 2012 11:44AM
Best Buy (NYS: BBY) may be giving its long-suffering shareholders a way out.
Founder Richard Schulze is firing off a letter to the board of the struggling consumer electronics retailer, requesting the board's permission to form a group of private equity firms and former Best Buy executives that would snap up the company at a price between $24 and $26 a share.
The stock -- which closed on Friday at $17.64 -- naturally popped higher on the news this morning, but we can't assume that a buyout will actually happen.
Negotiating in public
For starters, there's the timing of the letter. Speculation that Schulze is interested in parlaying his 20% stake in the company into a larger play to swallow the company whole has been out there for weeks. A source tells Bloomberg that Schulze has been negotiating unsuccessfully with Best Buy's board for weeks for the permission that is required under Minnesota corporate law to conduct the due diligence that his partners will require.
The source claims that the board told Schulze to give them another three weeks to consider the request, as they are still in the process of finding a new CEO.
If that's true, Best Buy's board is toast. What CEO would take a post knowing that he was about to be displaced unless there was a juicy golden parachute in the offer? That would be as self-serving as offering 100 top managers retention bonuses that aren't tied at all to the company's performance.
Oh, wait. Best Buy's been there, and done that.
Schulze is likely going public now because the company hasn't given him the answer he wants. He's kicking the board while it's down, and making the members look silly if they pass on his request.
Let them gamble with their money
Best Buy owes it to its shareholders to give Schulze a shot before continuing with the CEO process. After all, this isn't a sure thing.
There's a reason why the stock only opened at $21.60 and then proceeded to drift lower. The market's worried that the board's pride will get in the way of doing the right thing. It may also be questioning Schulze's ability to pull this off.
It wouldn't be a surprise to see private equity firms get cold feet here. If a moderately leveraged Best Buy is struggling for relevance today, what kind of shot does a highly leveraged Best Buy have tomorrow if Schulze and his team manage to pull this off?
Amazon.com (NAS: AMZN) isn't going away as a threat, even as the leading online retailer begins to play nice with sales tax collection in more states.
Schulze is contacting many of the former Best Buy executives to be part of his turnaround team, but there isn't anything that they can do about the revolution that has turned physical media into digitally delivered content, cutting out the brick-and-mortar middlemen. The wireless push that Best Buy is working on today hasn't been going so well for RadioShack (NYS: RSH) , and following the appliance-intensive success of hhgregg (NYS: HGG) and Conn's (NAS: CONN) would mean killing foot traffic given the low frequency of repeat business for big-ticket merchandise.
What if there's no way for Best Buy to win?
If there is a model to save Best Buy, it's probably not going to come from the chain's former rock stars that ruled in an era that is far removed from the reality of today. However, it is their money that they would be gambling with, and not today's retail shareholders.
The board owes it to its investors to pursue this exit strategy. We saw what pride got Circuit City as it rebuffed buyout offers all the way down to its eventual liquidation.
Only greed and ignorance would get in the way of this somewhat happy ending for public investors.
Oh, wait. Best Buy's been there, and done that too.
Best Buy is not a good buy
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The article Take the Money and Run, Best Buy Investors originally appeared on Fool.com.The Motley Fool owns shares of RadioShack, Amazon.com, and Best Buy. Motley Fool newsletter services have recommended buying shares of Amazon.com and hhgregg. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days. Longtime Fool contributor Rick Munarriz calls them as he sees them. He does not own shares in any of the stocks in this story. Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.
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