Best Buy Buyout? Why Founder's Bid May Be Retailer's Best Bet
A private buyout of Best Buy (BBY) may not be such a crazy idea after all.
Sources are telling The Wall Street Journal that founder Richard Schulze -- who stepped down from his roles as company chairman and director earlier this month -- is working with a Wall Street investment banker to take the struggling consumer electronics giant private.
It's not exactly a layup. Schulze only owns 20% of the company. He has to find enough willing investors -- likely among the ranks of private-equity firms -- to bankroll the purchase of the shares that he doesn't already own.
Another sticking point may be a matter of price.
Shares of Best Buy dipped into the high teens for the first time in more than three years last month. You would think that frustrated shareholders would relish a shot at an exit strategy, but the company's board may hold out for too rich of a premium.
Best Buy's battered stock popped nearly 5% higher on Tuesday after the Journal's story broke. The higher the speculative trading goes, the harder it will be for Schulze to raise the money he needs at an agreeable price.
Schulze Makes Sense in Leading the Charge
There isn't any publicly traded company that would be willing to expose itself to the scrutiny that would accompany buying a struggling retailer with what may be a broken model. Private-equity firms have greater leeway in their purchases, but they are typically only interested in buying growing companies or turnaround situations that they can unload for more money in the future.
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Best Buy fails on both counts. It has closed dozens of its superstores in recent weeks, and there's no reason to believe that the showrooming trend that's transforming former customers into online shoppers is going to end anytime soon.
However, Schulze has every reason to believe in the company that he created decades ago.
Schulze can't be happy with the company's board, which chastised him for failing to rat out then-CEO Brian Dunn after he learned that the executive was having an inappropriate relationship with an employee that violated the retailer's policy.
%Gallery-154260%Schulze was supposed to simply step down as the chairman after completing his term, but he left the board abruptly earlier this month.
Investors initially feared that he would dump his 20% stake in the company -- creating the potential for the stock to head even lower as supply drowned out demand -- but now it seems as if he may be more interested in finding a way to get the other 80% of the company back.
Given the many challenges that await Best Buy, the board better not get too cocky if Schulze is able to pull together an offer to take the company private. Circuit City's board rebuffed a couple of buyout offers, too -- and as we're all aware, that ended badly.
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Longtime Motley Fool contributor Rick Munarriz does not own shares in any of the stocks in this article. The Motley Fool owns shares of Best Buy.
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