What is Going on With Richard Schulze’s Plan to Take Best Buy Private?

A noticeable lack of news from Richard Schulze has been good news for Best Buy (NYSE:BBY) — no concrete updates regarding his plan to take the company private have been provided since the electronic retailer’s founder requested more time to take due diligence in early December. In the meantime, shares had been drifting up slightly higher; since the beginning of the year, the stock has gained 33 percent in the absence of any real drivers.

But shares got a sharp jolt on Wednesday when The Wall Street Journal reported that Schulze was considering scrapping his buyout plans. Investors quickly sold out, causing shares to drop 2 percent.

Since Schulze’s unsolicited first offer to take the company private last August was rejected by the board, he has extended the timeline for his second, amended offer several times. In August, he said he would buy the company for $24 to $26 per share, which would value it between $8.16 billion and $8.84 billion. However, analysts believe that Schulze’s final offer will be considerably lower than planned, as the electronics retailer’s stock price has fallen by close to 20 percent since the original offer was made…
Sources familiar with the matter told the publication that he may never make another proposal because he has been unable to secure enough financing from banks to take Best Buy private.

But there could be another plan in the works. Instead of buying out the company, sources informed the WSJ that Schulze was lining up investors to take a minority stake in the company. Schulze himself holds a stake of roughly 20 percent, making him the largest shareholder. He has until the end of this month to make a second offer, and because his discussions with potential investors are still in the early stages, the possibility that he will pursue his original plan cannot be discounted just yet.

Thanks to the lack of any real information one way or another, investors are not sure what to think. Since yesterday’s dive, shares have more than recovered, rising 3 percent by mid-day on Thursday. But the stock’s recent volatility is a sign that investors are confused over what the impact would be if Schulze pursues a private-equity-backed plan to take a non-controlling minority position in the retailer…
It is less confusing how the company will fare if it continues along its current course. Chief Executive Officer Hubert Joly, who was hired by Buy’s board at the beginning of September to strengthen its operational and financial performance, outlined a strategy to cut costs, combat showrooming, drive higher returns on assets, and rejuvenate the customer experience. In his estimation, Best Buy’s primary asset is its “highly skilled and engaged workforce” known as the Geek Squad, and Joly planned to build a better future on that strong platform. He also noted that this strength must be focused into the same brand recognition enjoyed by Amazon (NASDAQ:AMZN) and Apple (NASDAQ:AAPL).

One roadblock is that electronics shoppers are increasingly using the retailer’s stores to examine and test products before purchasing them from cheaper Internet companies like Amazon, a practice known as showrooming. This problem has continued unabated despite Joly’s efforts, and has negatively impacted sales.

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