Why Best Buy Shares Tanked

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: A day after jumping 16% on news of founder Richard Schulze's buyout plan, Best Buy shares are back where they started today, dropping 14%, after the deadline for a deal was extended.

So what: When news broke yesterday of Schulze's offer to take the company private at a valuation of $5 to $6 billion, reports said he would make a formal submission to the board by Sunday. Now, the company has pushed back the deadline, giving Schulze more time to get together the necessary financing. According to the new arrangement, Schulze would have until February to make an offer.

Now what: Interestingly, Best Buy shares lost all the gains they had made yesterday after the buyout was reported, even though the decision has only been delayed, not reversed. This seems to indicate the market's fear that the deal ultimately won't go through. Based on its current valuation, there's a 25% to 50% premium in Schulze's offer, but that could come down if shares continue to fall. Fundamentally, the retailer is still facing strong headwinds, but Schulze has been angling to buy the company since August. As long as he's waiting in the wings, Best Buy shares could be a good bet.

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The article Why Best Buy Shares Tanked originally appeared on Fool.com.

Jeremy Bowman has no positions in the stocks mentioned above. The Motley Fool owns shares of Best Buy. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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