Best Buy will not be purchased by founder

April 2013 | DEALFRONT | PRIVATE EQUITY & VENTURE CAPITAL

Financier Worldwide Magazine

The American consumer electronics corporation Best Buy Co Inc., will not be acquired by its founder Richard Schulze and his private equity partners after their six-month-long takeover attempt collapsed at the beginning of March.

Mr Schulze, who founded Best Buy with business partner Gary Smoliak in 1966, began the takeover process in August 2012 when he made an informal offer to purchase the company for approximately $8bn. Mr Schulze and his partners pledged to offer between $24 and $26 per share for the company. The price offered represented a 36 to 47 percent premium on the company’s market value at the time. In a statement released in August, Mr Schulze said “There is no question that now is the moment of truth for Best Buy and that immediate and substantial changes are needed for the company to return to its market-leading ways. I am confident we can bring back Best Buy and that the name over the door will once again mean something special to our customers and employees.”

Cerberus Capital Management LP, TPG Capital and Leonard Green & Partners were the three private equity firms involved in the aborted takeover proposal. The firms did make a formal offer for Best Buy – however that offer was only for a minority stake in the company. Best Buy chief executive officer Hubert Joly described the firm’s offer as “excessive and dilutive” to shareholders. Mr Joly also noted that “During the process, (Mr Schulze) introduced to the company several impressive private equity sponsors, who all expressed interest in an investment in Best Buy.”

The proposed buyout came after Mr Schulze was forced to resign from the Best Buy board in May 2012. Mr Schulze left the company after he failed to notify other board members about allegations of personal misconduct regarding a relationship between former Best Buy chief executive officer Brian Dunn and a younger employee.

Mr Schulze, who still remains Best Buy’s biggest shareholder with a 20 percent stake in the company, had until midnight on Thursday 28 February to submit a formal buyout proposal to the company’s board. However, he failed to line up the appropriate debt and equity financing and the deal subsequently collapsed. In a brief statement Best Buy noted that it had “received no such offer and will continue to focus on its transformation for the benefit of all of its stakeholders”.

Under the terms of the takeover, each of the private equity firms would have received a seat on the Best Buy board, while Mr Schulze would also have been able to nominate two directors. These appointments would have given Mr Schulze and his partners five seats on the 11-strong Best Buy board. A Schedule 13-D filing submitted on Mr Schulze’s behalf noted that he “believes that the company deserves a chance to implement its own plan. No one is more interested in the success of the company than Mr Schulze. Mr Schulze has not made any determination as to whether or not he will exercise his right to appoint his own two nominees to the company’s board of directors.”

Following the announcement regarding the aborted takeover, shares in Best Buy rose as high as $17.45. The electronics giant also announced its Q4 2012 and annual results on 1 March 2013. The company reported revenues for the final quarter of 2012 of $16.71bn, slightly higher than the $16.67bn reported for 2011. Furthermore, the company was able to reduce net quarterly losses to $409m from $1.81bn in Q4 2011. Best Buy also saw an 11 percent growth in Q4 online sales.

Richard Summerfield