Best Buy: Mr. Market Teaches a Hard-Learned Lesson

The Lesson

Instead of announcing juicy details of a multi-billion dollar deal, the company and Schulze announced on Friday they only decided to change the terms of their August agreement, allowing Schulze until the end of February to make a bid for the retailer. The extended period will enable him to perform more due diligence by looking at Best Buy’s fourth quarter and full-year results.

According to the press release, “Both parties believe that allowing Mr. Schulze to bring his offer after the holiday season and fiscal year end is in the best interests of shareholders and provides Mr. Schulze and his potential partners with an opportunity to include the Company’s full year results as part of their due diligence review. Accordingly, Best Buy and Mr. Schulze have mutually agreed that Mr. Schulze will have the opportunity to deliver the proposal to the Board of Directors on or after February 1, 2013 through February 28, 2013.”

CHEAT SHEET Analysis: Trends Do Not Support the Company

One of the core components of our CHEAT SHEET Investing Framework explains that companies riding macro trends tend to outperform those which don’t. Think of the investing proverb, “A rising tide raises all boats.” However, Best Buy looks to be a sinking ship without a confirmed buyout offer.

Investors did not take the news well. On Friday, Best Buy plummeted more than 15 percent on heavy volume. Despite the prior day run-up, shares are now near decade lows once again. While Best Buy shares could still see a bounce when or if a buyout offer comes, investors should not forget the risk that comes with investing in a fundamentally challenged company like Best Buy.

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