Richard Schulze--the founder and former chairman of Best Buy Co. (BBY)--has ramped up his takeover attempt of the electronics retailer with a letter to the board requesting permission to form a group and conduct due diligence in order to present a fully financed offer for the company.
Earlier this month, Mr. Schulze, who started Best Buy 46 years ago, offered to buy the remaining shares of the big-box electronics retailer that he doesn't already own in a deal that values the company at up to $8.84 billion. The board called his offer "a highly conditional indication of interest."
Shares were up 2.8% to $19.90 in recent premarket trading, still well below the low end of Mr. Schulze's offer of $24 to $26 a share. The stock is down 22% in the past 12 months.
Mr. Schulze, the retailer's largest shareholder with a slightly more than 20% stake, abruptly resigned his post as chairman and a director of the Richfield, Minn., company in June, saying he was pondering options for his shares.
Under Minnesota law, Mr. Schulze must first get approval of the Best Buy board before forming an investment group, conducting due diligence and submitting a formal bid.
He noted that "a number of leading private equity firms" have informed him that they are prepared to make "significant commitments, subject to due diligence." He added that he is prepared to roll over into this transaction at least $1 billion of his own equity--and potentially all of his existing stake depending on the ultimate terms of the agreements with the private equity firms.
He added Credit Suisse is also highly confident it can arrange the necessary debt financing.
Mr. Schulze remains tied to Best Buy through a web of business deals and a foundation that also involve his brother and daughter. The value of his holdings has dropped by more than half since late 2007.
Mr. Shulze envisions a turnaround plan for the electronics retailer that involves cutting prices to better compete against Amazon.com Inc. (AMZN) and other online retailers while ensuring that the in-store customer-service experience is as good as Apple Inc.'s (AAPL), The Wall Street Journal reported earlier this month.
Such efforts would both reduce profit margins and turn back a cost-cutting plan already under way at the company. The company plans to shut 50 big-box stores, shrink its cavernous floor space, and cut $800 million in costs by the 2015 fiscal year.
Best Buy, with 1,400 stores, is struggling amid competition from online retailers able to offer lower-priced electronics. According to the Journal, Best Buy will announce in coming weeks that it plans to cut costs further than previously announced. The plan would reduce its selling space by well in excess of 1 million square feet, mainly by shrinking its stores and closing more stores than the 50 previously outlined.
In his Thursday letter, Mr. Schulze noted that "this is a critical time for Best Buy," adding he is "deeply concerned about the direction of the company", which "faces enormous challenges, not the least of which is an erosion of its culture and values."
Write to Saabira Chaudhuri at [email protected]
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