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Founder bids to take Best Buy private

by Lou Whiteman | Published August 6, 2012 at 10:32 AM

The founder and leading shareholder of Best Buy Co. on Monday, Aug. 6, offered to acquire full control of the retailer in a deal that values the company at up to $8.84 billion.

Richard Schulze, who stepped down as chairman of Minneapolis-based Best Buy in June, in a letter to the board offered to purchase the shares he does not already own for $24 to $26 per share, a premium of 36% to 47% over the company's Friday close of $17.64. Schulze, who founded the company in 1966, currently owns about 20.1% of the retailer's shares.

The offer comes as Best Buy continues to struggle with still-weak consumer spending and confronts an emerging threat known as "showrooming," or evaluating electronics items at Best Buy but purchasing them at a discount online. Schulze in his letter to the board said that he has developed a business plan that addresses the challenges Best Buy faces and has held discussions with "several premier private equity firms" interested in participating in a deal.

Schulze in his letter said he believes his go-private offer is in the best interests of the company and its shareholders. "I cannot emphasize strongly enough how much I believe in Best Buy and its future," he said.

He has also held discussions with former Best Buy executives including former CEO Brad Anderson and former president and COO Allen Lenzmeier who he said are interested in rejoining the company.

Schulze said that he plans to finance the deal through a combination of private equity investment, the reinvestment of about $1 billion of his own equity and debt. Financial adviser Credit Suisse Group has informed Schulze that it is "highly confident" it can arrange the necessary debt finding to complete a deal.

Janney Montgomery Scott LLC analyst David Strasser in a note said his model indicates Best Buy's valuation in a buyout could exceed $26 per share and could go as high as $30 per share. "This is a company with strong cash flow, a great balance sheet, and a very strong consumer position in the market- one that we clearly believe is in the position to leverage the next and future technology products," Strasser wrote.

But first Schulze needs to put his investment team together. The executive said that under Minnesota law he must receive permission from the Best Buy board of directors before he reaches any agreement with potential partners to participate in the deal. Schulze in his letter said he has "made repeated requests" to the board to provide him with due diligence and to give him consent to form a buyout group, as required under state law.

"In your most recent communication to my advisors, you indicated that the board would need an additional three weeks before it could consider my requests," Schulze wrote in a letter to chairman Hatim Tyabji. "I am submitting this letter in the hope that, with a concrete proposal in front of it, the Board will have a compelling basis on which to grant my requests and avoid further delay."

Joining Credit Suisse in advising Schulze is Shearman & Sterling LLP.

-- Demitri Diakantonis contributed to this report.

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