Best Buy founder proposes taking retailer private

(Reuters) - Best Buy Co Inc founder Richard Schulze on Monday offered to take the struggling U.S. electronics retailer private in what could be the biggest leveraged buyout of the year.

The offer comes less than three months after Schulze was forced out as chairman for failing to report allegations of personal misconduct by the then-CEO.

The deal values the world's largest consumer electronics chain at $8.16 billion to $8.84 billion, or $24 to $26 a share -- a price tag that many on Wall Street deemed inadequate.

Best Buy shares were up 11.5 percent at $19.67 on Monday afternoon, still well below the proposed offer price range, reflecting investor skepticism that the deal would get done.

"It is a different conversation if it is at least $30 a share and you have got your equity financing lined up and you have got your debt financing lined up. That is where shareholders, I think, might say 'You know what, let's just take the money and run,'" said Anthony Chukumba, analyst at BB&T Capital Markets. BB&T Capital Markets expects to receive or intends to seek compensation for investment banking services from Best Buy in the next three months.

The offer by the former Best Buy chairman, who owns 20.1 percent of its stock, represents a premium of 36 to 47 percent over the stock's closing price of $17.64 on Friday.

Best Buy has been closing stores, cutting jobs and trying out a new store format to try to improve its business.

The company, a bellwether for the consumer electronics industry, has also been criticized for being too slow to react to a changing retail world, where some shoppers use Best Buy as a "showroom" to try out electronics and then buy the same items at lower prices online or elsewhere.

It has posted declines in same-store sales in seven of the last eight quarters.

"My feeling is that being private would give them more of an opportunity to experiment, try new things outside the glare of quarterly reports," said New York-based retail consultant Walter Loeb.

Schulze, who founded the retailer under the name Sound of Music in 1966, said he would finance the deal through a combination of private equity investment, about $1 billion of his own equity, and debt.

Including the assumption of Best Buy's debt, the total value for the company would be $10.9 billion, making it the year's biggest leveraged buyout so far, according to Thomson Reuters data.

Schulze said he had held talks with top private equity firms about his proposal, but did not name them.

Credit Suisse, Schulze's financial adviser, has said it is highly confident it can arrange the necessary debt financing, Schulze said in a letter to Best Buy Chairman Hatim Tyabji.

Schulze resigned from Best Buy's board in June and later said he was exploring options for his ownership stake. He lost the chairmanship after a probe by a board committee found he had failed to tell the board about allegations of personal misconduct by then-CEO Brian Dunn.

The company, which named board member Mike Mikan as interim CEO, is now searching for a permanent replacement for Dunn.

Schulze said on Monday he was making his offer public after repeated requests to the company for the information he needs to perform due diligence on the proposal.

Best Buy said its board would evaluate Schulze's offer carefully and "pursue the best course for shareholders."

C-SUITE WOES

Schulze said he had held talks with past Best Buy executives who were interested in rejoining the company, including former CEO Brad Anderson and former Chief Operating Officer Allen Lenzmeier.

Schulze does not plan to take a management role if his offer is accepted, two sources familiar with the matter told Reuters on Monday.

Chukumba said Schulze's decision to avoid holding a management executive role would be viewed positively, but he was skeptical about bringing in former Best Buy executives to run the retailer.

"Their track record is good, but to me that was a different time and a different place. When Brad Anderson was running the company, Amazon was not on anyone's radar screen. When Brad Anderson was running the company, flat panel TVs came out and everybody wanted one," Chukumba said.

Investors including Connor Browne, portfolio manager of the Thornburg Value Fund which owns Best Buy shares, have told Reuters that they wanted to see a fresh face at the helm of the retailer, which has lost many of its customers to Amazon.com Inc and Wal-Mart Stores Inc.

"I want some new guys in there, some new guys that understand what is really going on in retail, not the guys that essentially positioned Best Buy to fail, like they are right now, who in many respects did not anticipate this change," said Brian Sozzi, chief equities analyst with NBG Productions.

Sozzi also said Schulze's offer seemed low compared with estimates he had heard of the company fetching $31 to $33 a share.

Credit Suisse is serving as financial adviser to Schulze, while Shearman & Sterling LLP is legal counsel. Best Buy's financial advisers are Goldman, Sachs & Co and J.P. Morgan. Simpson Thacher & Bartlett LLP is serving as legal adviser to the retailer.

(Additional reporting by Phil Wahba and Nadia Damouni in New York and Jessica Wohl in Chicago; editing by Jeffrey Benkoe, Sofina Mirza-Reid, John Wallace and Matthew Lewis)

Source: http://news.yahoo.com/best-buy-founder-offers-24-26-per-share-124408986--sector.html

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