Analyst Says Schulze’s Best Buy Buyout Is Unlikely

Analyst Says Schulze’s Best Buy Buyout Is Unlikely

A Merrill Lynch analyst reportedly said that a Best Buy buyout is unlikely due to the difficulty of obtaining necessary financing; she also restored an “underperform” rating to Best Buy’s stock.

While there has been much anticipation surrounding Best Buy founder Richard Schulze’s possible takeover bid for the Richfield-based electronics retailer, at least one analyst is predicting that no such buyout will materialize.

Media reports indicate that Bank of America/Merrill Lynch analyst Denise Chai said Monday that a buyout is unlikely because “financing will be difficult to secure.”

Even if Schulze does make an offer, Bank of America believes that it’s unlikely to match the $24 to $26 a share that he said he was considering in early August when first announcing plans to pursue a takeover, according to a report by The Wall Street Journal. For that reason, Bank of America expects the board to reject the offer if it does materialize.

The Wall Street Journal pointed out that takeover rumors often help boost a company’s stock price, but Schulze’s discussions about a possible takeover bid are no longer causing the company’s stock to rise.

Chai reportedly restored an “underperform” rating to Best Buy’s stock. Bank of America had reportedly removed its “underperform” rating and had no rating for the company, because its shares were being boosted by the possibility of a buyout, but Chai now believes the company’s stock price is reflecting Best Buy’s business fundamentals.

Chai said in her report that Best Buy is facing “very challenging trends,” and “we do not see structural headwinds improving anytime soon,” according to a report by Barron’s.

Chai also said that, if the trends continue, “liquidity risks alone could make securing financing for a takeout bid even more challenging,” according to Barron’s.

After warning that it anticipated poor sales results for the third quarter, Best Buy last month confirmed that its prediction was accurate.

The retailer reported a net loss of $13 million, or 4 cents per share, from continuing operations for the quarter that ended November 3. Excluding restructuring charges, the company’s net loss totaled $10 million, or 3 cents per share—falling significantly short of the 12 cents that analysts polled by Thomson Reuters were expecting.

Revenue for the quarter dropped about 3.5 percent to $10.8 billion, and sales at stores open for at least a year—a key measure of a retailer’s health—slid 4.3 percent.

The company’s stock price has dropped significantly since Schulze first announced his plans to pursue a takeover. In mid-August, the company’s stock was at about $20; it was trading down about 3 percent at $12.03 late Tuesday morning.

Initial talks between Schulze and Best Buy’s board broke down in mid-August, but later that month the two sides reached an agreement that granted Schulze access to the company’s non-public financial information in order to put together a formal buyout offer.

Schulze and Hubert Joly, who took the reins as Best Buy CEO in September, were scheduled to meet last month, according to a report by the Star Tribune, which cited unnamed sources. Chai, meanwhile, said that Schulze is expected to talk to Best Buy’s board about any buyout possibilities later this month, according to Barron’s.

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