Best Buy Board Changes Bylaws, Makes Takeover More Difficult

Best Buy’s bylaws now require that an investor own at least 25 percent of the company’s stock in order to call a special meeting related to a “change of control”; founder Richard Schulze and entities that he controls own 21.2 percent.

Best Buy Company’s board has hampered any plans that founder Richard Schulze might have had to take the electronics retailer private.

At the Richfield-based company’s annual shareholders meeting Thursday, the board of directors changed Best Buy’s bylaws to require that an investor own at least 25 percent of the company’s stock in order to call a special meeting related to a “change of control.”

Schulze abruptly resigned his director post earlier this month and simultaneously announced plans to explore options for his 20.1 percent ownership stake—although entities that he controls collectively own another 1.1 percent. Some analysts subsequently predicted that Schulze would simply sell his stock, but unnamed sources close to the situation have reportedly told the Star Tribune that he’d like to take Best Buy private under new owners and management. (Citing those sources, the Minneapolis newspaper also reported that Schulze has already hired a prominent New York attorney and investment bank Credit Suisse, which specializes in leveraged buyouts, to advise him.)

Best Buy’s bylaws previously required a shareholder to own at least 10 percent of the company’s stock in order to call a special meeting. Schulze is the only shareholder whose stake exceeded that threshold.

In a filing with the U.S. Securities and Exchange Commission, Best Buy said that the change of bylaws was made to conform to a specific Minnesota law, but a company spokesperson couldn't immediately provide further details.

Following a scandal involving the company’s former CEO, Brian Dunn, Schulze was scheduled to step down as chairman at the conclusion of Best Buy’s annual meeting last week—and the company previously announced that he would serve out the remainder of his director term, which goes through June 2013. His board resignation earlier this month accelerated his departure from both posts.

In April, Dunn abruptly resigned. Then last month, Best Buy released the results of an independent investigation, which found that Dunn violated company policy by engaging in “an extremely close personal relationship with a female employee that negatively impacted the work environment.”

The investigation also found that Schulze “acted inappropriately” when he failed to notify Best Buy’s audit committee after learning in December about allegations of such a relationship. The report indicates that an unnamed company executive provided Schulze with a written statement from another employee that contained allegations about a possible inappropriate relationship. Schulze did confront Dunn and handed him a copy of the written statement.

In other news from the company’s annual meeting: Best Buy has agreed to comply with a nonbinding shareholder resolution requesting that directors stand for reelection on an annual basis. Best Buy said that the measure “was supported by the board of directors as a demonstration of the company’s commitment to transparency and strong corporate governance practices.”

The company previously had shareholders vote on one group of directors one year—and the remaining directors the following year.

Best Buy is Minnesota’s third-largest public company based on revenue, which totaled $50.7 billion for the fiscal year that ended March 3. The recent shakeup involving Dunn and Schulze comes amid a major company restructuring involving the closure of 50 big-box stores and 400 corporate layoffs, which were announced in late March. Best Buy has since lost a number of key leaders.

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