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 saabira.chaudhuri@dowjones.com
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