Best Buy’s (NYSE:BBY) founder and largest shareholder Richard Schulze is prepared to take the electronics retailer private. Citing sources familiar with the company, the Minneapolis Star Tribune reported on Wednesday that ahead of a December 16 deadline, Schulze is expected to make a fully financed offer of $5 billion to $6 billion to its board of directors.
What are the Particulars of Schulze’s Offer?
When Schulze made his first bid for the company on August 6, its stock price was close to $20 per share. But in the intervening months, shares have dropped nearer to $10 than to $20. Because of this drop, the former chairman lowered his bid from an initial offer of $24 to $26 per share, which added up to a total acquisition cost of $8.16 billion to $8.84 billion.
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To date, the attempted takeover has been messy. As Fortune described the situation, the acquisition process has been more akin to a heavily disputed custody battle than “a friendly M&A process.” According to the publication’s analysis, Schulze thinks the company’s current management is destroying Best Buy’s value, while the board of directors maintains that he is responsible for the retailer’s current woes. As a result, any attempts at an agreement have stalled.
Meanwhile, Best Buy’s future looks increasingly bleak; its market capitalization has shrunk to $4.6 billion, and its poor third-quarter results have revealed just how worrisome the company’s depressed sales have become. For the three-month period ended on November 3, Best Buy posted a loss of $10 million, or 3 cents per share, missing analysts’ already-lowered-expectations for the quarter by 9 cents.
But as Schulze’s impending offer draws nearer, shares have responded positively.
As the Tribune stated in its coverage of the deal, Schulze has secured financing through bankers and private equity investors, including Cerberus, Leonard Greene & Partner and the Texas Pacific Group.
CHEAT SHEET Analysis: Is this a Catalyst for Best Buy’s Stock?
One of the core components of our CHEAT SHEET Investing Framework focuses on catalysts that will move a company’s stock. In this case, Schulze’s proposed takeover would have a dramatic impact on Best Buy’s future. If his offer is accepted by the board, the electronics retailer will no longer be a publicly traded company, and therefore stock price would no longer be an indicator of its viability. However, if the bid is rejected, the decision could signal to investors that the company’s current management has confidence in Best Buy’s profitability prospects.
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