Major Hedge Fund Sells Best Buy Shares, Takes a Loss
Hedge fund mogul David Einhorn’s Greenlight Capital has sold its minority stake in Best Buy Company, Inc.—and analysts are reportedly speculating that the move could spell good news for the electronics retailer’s founder and former Chairman Richard Schulze.
In a Monday letter to investors, New York-based Greenlight Capital said that it sold its stake. A May filing with the U.S. Securities and Exchange Commission revealed that Greenlight owned 7.7 million shares, which equates to about 2.27 percent of Best Buy’s stock.
Greenlight said in its letter that its investment in Richfield-based Best Buy was “particularly irksome,” and it outlined some “unexpected problems” that ultimately prompted it to sell its shares. Among them: the departures of CEO Brian Dunn and Schulze.
Dunn abruptly resigned in April. Then in May, Best Buy released the results of an independent investigation, which found that he violated company policy by engaging in “an extremely close personal relationship with a female employee that negatively impacted the work environment.” The investigation also determined that Schulze “acted inappropriately” when he failed to notify Best Buy’s audit committee after learning in December about allegations of such a relationship—and Schulze subsequently resigned from the company’s board and announced plans to explore options for his 20.1 percent ownership stake. (Entities that he controls own another 1.1 percent.)
“As a result, the company has an interim CEO and is trying to come up with a strategy,” Greenlight said in its letter to investors. “We worried that this could lead to additional business disruption so we exited with a loss.”
Greenlight didn’t disclose its exact loss, but the Star Tribune reported that its own analysis of the hedge fund’s stock purchases suggests that the sum could approach $100 million.
Citing analysts, the newspaper also reported that Einhorn’s move may help Schulze. Unnamed sources with knowledge of Best Buy’s situation told the Star Tribune last month that the options Schulze is considering include trying to take Best Buy private or replace the board of directors.
A prominent and well-respected hedge fund manager dumping his shares and taking a loss is “not a vote of confidence” in the company, longtime Wall Street analyst Jeremy Brunelli, who has closely followed Best Buy, told the Star Tribune.
However, on the flip side, Einhorn could have sold because he doesn’t think Schulze will make a serious offer to buy the company, Brunelli reportedly said; if Einhorn did anticipate such an offer, it seems logical that he would have waited to find out what it was before selling his stake and taking a loss.
Best Buy, which is expected to release a long-term growth plan by the end of the summer, is Minnesota’s third-largest public company based on revenue, which totaled $50.7 billion for the fiscal year that ended on March 3.