Report: Schulze Likely Won’t Bid, Wants to Chair BBY
As Best Buy founder Richard Schulze faces a Thursday deadline to submit a bid to purchase the electronics retailer, a report suggests that he may be backing away from plans to acquire the company but wants to regain his former position as chairman of the board.
The Star Tribune, citing unnamed sources, said that Schulze appears to have given up his buyout bid but is negotiating with the company’s directors over his role on the board. Current directors are reportedly resistant to Schulze’s desire to regain chairmanship.
“There is a lot of dialogue going on with the board,” a source told the Minneapolis newspaper. “The board wants [Schulze] to come back. But they don’t want him as chairman.”
Schulze, who owns a 20 percent stake in Best Buy, also remains in discussions with investors to boost his share of the company, the Minneapolis newspaper reported. Given Schulze’s ownership stake, he’s already entitled to two seats on Best Buy’s board—and an investor who buys a stake would gain another seat and give him three seats on the 11-member board. According to the Star Tribune, the investor would likely be one of the three private equity firms Schulze enlisted to finance the bid: Texas Pacific Capital, Leonard Greene & Partners, and Cerberus Capital Management.
Meanwhile, Best Buy spokeswoman Amy von Walter confirmed Thursday morning that Schulze has until midnight to make an offer to purchase the company. If he doesn’t, he must wait until next year to try again.
For months, Richfield-based Best Buy had planned to release its fourth-quarter and fiscal 2013 earnings on Thursday. But earlier this week, the company said it would instead report results early Friday, a move that gives Schulze the full day to submit a bid.
Von Walter said the earnings results were delayed “specifically to allow for the expiration of the period of time Mr. Schulze had to respond to the company.”
While some analysts have said that delaying the earnings report might signify that the company has good reason to believe that Schulze will make an offer, others have said they don’t expect a bid. Whether or not an offer is made, Best Buy CEO Hubert Joly is likely to receive questions about Schulze during Friday’s earnings conference call.
The Star Tribune’s Thursday report is consistent with a Wall Street Journal report earlier this month, which indicated that Schulze was considering scrapping his idea to take over Best Buy. Citing unnamed sources “familiar with the matter,” the newspaper said that Schulze was weighing the idea of instead lining up investors to take a minority stake in the company.
Schulze, who founded Best Buy in 1966 as a single stereo shop in St. Paul and long served as its chairman, resigned from Best Buy’s board last June on the heels of a scandal involving ex-CEO Brian Dunn.
In August, he announced his interest in potentially taking Minnesota’s third-largest public company private, saying at the time that he was considering a bid of $24 to $26 per share; the company said at the time that the action was an “unsolicited, highly conditional indication of interest.” Schulze is already Best Buy’s largest stakeholder.
Initial talks between Schulze and Best Buy’s board broke down in mid-August, but later that month the two sides struck a deal that granted Schulze access to the company’s non-public financial information in order to put together a formal buyout offer. Under the terms of that deal, Schulze had until December 16 to submit an offer, but two days beforethat deadline, Best Buy said the two parties had “mutually agreed” to amend the earlier agreement and that Schulze would be allowed to submit a bid betweenFebruary 1 and February 28.
Best Buy said at the time that if Schulze submitted an offer during that window, its board would review and take a position on the bid within 30 days.
The Star Tribune noted that even if Schulze makes an offer Thursday, neither party necessarily has to say anything about it that same day. The Securities and Exchange Commission’s disclosure rules are reportedly unclear about whether the company or Schulze are legally obligated to disclose an offer or a lack of one.
Von Walter declined to comment on how soon Best Buy would disclose an offer to the public.
It’s unclear who among Best Buy’s current leaders would remain and comprise Schulze’s team if a buyout occurs, although Schulze previously said that he has tapped former Best Buy CEO Brad Anderson and former President and Chief Operating Officer Al Lenzmeier to serve in some capacity, in the event that his takeover is successful.
Over the past year, Best Buy has made several rounds of job cuts and closed big-box stores; its most recent job cuts occurred Tuesday, when the company eliminated about 400 people at its Richfield headquarters, a move that’s part of an effort aimed at cutting about $150 million in costs. The company has also seen an exodus of leaders and significantly altered its executive roster. Joly took the helm in September, and in November, former Williams-Sonoma Chief Financial Officer (CFO) Sharon McCollam became Best Buy’s CFO and chief administration officer.
Best Buy recently announced that its same-store sales during the holiday season were essentially flat—welcome news on the heels of several quarters of declines and an announcement that caused the company’s stock price to rise. Best Buy’s stock had been trading up about 30 percent from prior to its holiday sales announcement, but still well below the preliminary $24- to $26-per-share offer that Schulze said in August that he was considering. Mid-morning on Thursday, shares of Best Buy’s stock were trading up about 0.3 percent at $16.65.