Best Buy Company Inc
) agreed to open its financial statements to founder and former
chairman Richard Schulze, thereby allowing him to pursue his plan
of buying the beleaguered retail chain.
As per the agreement, Schulze will have access to certain due
diligence information and will also be allowed to form an
investment group with private equity sponsors in order to take the
company private. Further, he will receive two board seats for
possessing 20.1% ownership stake in the company.
Best Buy has long been struggling with dwindling sales in key
categories including televisions, notebooks, digital imaging and
gaming devices, which in turn, is taking a toll on the company's
same-store sales results.
Moreover, heightened competition from online retailers like
), is adversely affecting its sales and profitability as the online
retailers are gradually encompassing new merchandise categories
under their purview and offering huge discounts on products with
free shipping services to attract customers.
In the recently concluded quarter, earnings of this consumer
electronic products retailer came in at 20 cents per share, down
49% from 39 cents in the year-ago quarter, and also short of the
Zacks Consensus Estimate of 31 cents. On a reported basis,
including one-time items, quarterly earnings substantially
plummeted to 4 cents per share from 34 cents.
On one hand, this slide in earnings challenges Hubert Joly, the
newly appointed Chief Executive Officer, with the task of
completely revamping the operations, while on the other, the
company's dismal results strengthens the position of Richard
Coming back to the agreement, even if the Board rejects his
proposal, Schulze can make another offer in January 2013. However,
on rejection of the second proposal, Schulze will not pursue an
acquisition for a year.
In June, Schulze stepped down from his position after serving
for almost four decades in the company. Prior to that, Best Buy's
CEO, Brian Dunn, resigned abruptly, following an internal probe
relating to his improper relationship with a female employee.
Currently, we have a long-term Underperform recommendation on
the stock. Moreover, Best Buy, which faces competition from
Wal-Mart Stores Inc
), holds a Zacks #4 Rank that translates into a short-term Sell
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