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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