According to the
Wall Street Journal
, part of Best Buy (NYSE:
) founder Richard Shulze's turnaround plan is to compete with Apple
) on customer service. Shulze has offered to take the struggling
retailer private at between $24 and $26 per share. Currently, BBY
is trading at just under $20. The proposal is informal, and many on
Wall Street are skeptical that he could obtain the necessary
financing to buy the company. If Schulze is successful in his bid,
it would be the largest go-private deal since the financial
The Journal is reporting that potential partners in the deal
could include private equity firms Apollo Global Management, KKR
& Co., Leonard Green & Partners and TPG Capital, among
others. Mr. Schulze indicated as much when he said that he has had
discussions with "leading private-equity firms," about the
potential transaction, but he did not mention any specific
Currently, the Best Buy founder owns one fifth of the company,
but he no longer has an official role with the company after
relinquishing his chairmanship in June. What is interesting about
Mr. Schulze's plans for the company is that they are in direct
opposition to those of the current management team. Best Buy has
been struggling with very weak top-line growth in recent years, and
the this has taken a toll on the share price.
The stock has lost more than 54 percent of its value over the
last five years as the company's business model has come under
scrutiny from investors. Rather than supporting Best Buy's current
strategy of cutting costs and downsizing the business, Schulze's
plan calls for the company to cut prices while avoiding major
cost-cutting. According to the Journal's report, Schulze believes
that the current downsizing plans could put the company out of
He thinks that in order to compete with the likes of Amazon
) and Apple (NASDAQ:
), Best Buy will have to improve its value proposition in the eyes
of consumers, and that means lower prices and premium service. Of
course, this strategy could be costly in the near-term, and may
never work out.
What seems certain is that Schulze's ideas for the company would
be nearly impossible to implement if Best Buy stays a public
company. Not only does management appear to disagree with the
founder, but it is unlikely shareholders would tolerate such a
risky plan that would surely be unprofitable in the near-term.
It seems as if Best Buy will continue to aggressively cut costs
as the battle for the company plays out. According to a Wall Street
Journal source, the company will announce in the coming weeks that
it plans to cut costs even more by selling space in excess of 1
million square feet and closing more stores than the 50 it has
The company's board of directors has told Mr. Schulze that it
wants to wait until after its earnings announcement on August 21 to
revisit the proposal. Meanwhile, the details of a potential deal
such as partners nad financing will have to be ironed out before
the market actually takes the offer seriously.
While Mr Schulze's bankers at Credit Suisse (NYSE:
) said that they are "highly confident" that they can secure $7
billion in funding for the transaction through debt, Schulze and
his potential partners would still have to come up with around $3
billion in cash.
(c) 2012 Benzinga.com. Benzinga does not provide investment advice.
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