This May Be Best Buy's Last Hope

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Best Buy StoreBest Buy (BBY) founder Richard Schulze apparently isn't giving up on his dream of taking back his company.

Reuters reported Wednesday that Schulze and a consortium of at least four private equity firms are studying the struggling consumer electronics retailer's books to explore what sources say may be an $11 billion buyout.

Don't hold out for an immediate resolution. A source tells Reuters that the group is unlikely to have a buyout proposal until mid-November at the earliest, and that's if the firms like what they see after diving into the numbers. Schulze understandably has an emotional attachment to the company that he got off the ground decades ago, but private equity firms will only invest in something that they feel will be worth more down the road.

Best Buy will prove to be a perplexing decision for even seasoned bean counters.

Singing the Best Buy Blues

Schulze owns a 20% stake in the company, so the 71-year-old founder will be an important player in any potential deal.

He had a falling out with the company's board earlier this year when now-former CEO Brian Dunn was dismissed under allegations of having an inappropriate relationship -- according to Best Buy's corporate policy -- with an employee. Dunn had confided in Schulze, who was then taken to task for not getting back to the board with the information.

Schulze approached the board in June to discuss plans to take the company private but was rebuffed. He went public with his battle to wrestle back control two months later, exciting battered shareholders with the notion of buying back the company at a price between $24 and $26 a share.

Best Buy's shares were in the high teens at the time.


Taking the Easy Way Out

A lot has happened at Best Buy since Schulze's summertime offer, and most of it hasn't been good for its shareholders.

The retailer's board went ahead and hired a new CEO, and that's a move that will make it more expensive for a potential buyer given the new helmsman's lavish pay package. Best Buy also had another disappointing quarter.

Schulze may still be willing to buy the company in the mid-$20s, but his potential private equity partners may not see it that way. They don't have the sentimental attachment to Best Buy, and there's little reason for them to get excited about the chain's future prospects.

Few things seem to be trending Best Buy's way these days. Amazon.com (AMZN) is eating its lunch. Much of its space is devoted to selling CDs, DVDs, e-books, and video games, but digital delivery is disrupting all four platforms. Rolling out smaller Best Buy Mobile stores as it closes down some of its superstores makes sense on paper, but RadioShack (RSH) -- further along with a similar strategy -- is doing so badly that it had to suspend its dividend and recently lost its CEO.

A Schulze buyout may be the last chance for investors to get out at a reasonable price, but it remains to be seen when -- and at what price -- a deal can get done.



Motley Fool contributor Rick Munarriz does not own shares in any of the stocks in this article. The Motley Fool owns shares of Amazon.com and Best Buy. The Motley Fool has sold shares of RadioShack short. Motley Fool newsletter services have recommended buying shares of Amazon.com.


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Heather

I will never buy from them again. Their electronics are unreliable, customer service lies about known defects, warranty service is like pulling wisdom teeth, and after fighting it out over defective products for a year and losing thousands in the process b/c I had to replace all those products via another retailer.. no no no.. Best Buy is black listed in my book and I will NEVER waste my money in that store again. It is no wonder they descend upon customers like a pack of wolves, they are desperate for new suckers b/c everyone who has purchased and been scammed by them before won't come back.

October 27 2012 at 12:15 PM Report abuse rate up rate down Reply
Michael Belk

Best Buy has gotten to big for their own good. The economy has made it harder for people to buy many of their products like music cds.

I go there with one thing in mind. They do not do a good job promoting other products related to electronics.

October 06 2012 at 11:59 AM Report abuse rate up rate down Reply
sndnature

Pack of wolves...Very awesome. They should go casual...No more Dockers & Polo shirts....I love walking into an Apple store and the dress & enviorment is relaxed. Best buy is soooo nervious. Cramming extended warranties up your rear end...Hi..Hi can we help you...Over & over...Am I raw meat and the wolves haven't eat anyhing in days?

October 05 2012 at 12:58 AM Report abuse rate up rate down Reply
tami1352

When I walk into Best Buy, it's like walking into a den of death. It's soooo quiet; except for the workers in blue who all attack like a pack of wolves (or car salesmen). It's no longer enjoyable to shop there. I will play higher prices on some things if I'm enjoying the experience. Whether it be for clothes, electronics, shoes, etc. My suggestion is to make it so people want to come to Best Buy. Play some music, make the atmosphere seem more casual and call off the wolves.

October 04 2012 at 8:51 PM Report abuse rate up rate down Reply
jwells1008

Hah, will never go there again. Got a virus on my computer and they told me I had to pay $189 for tech support to get it fixed. A friend of mind fixed it for free and told me a local place to take it to next time.

October 04 2012 at 3:51 PM Report abuse +1 rate up rate down Reply