Best Buy said on Friday that founder Richard Schulze did not meet the February 28 deadline to make a buyout offer that would turn the retail chain into a privately-held company. Best Buy said that because a final buyout proposal was not received, it will continue to focus its transformation for the benefit of all of its stakeholders.
Schulze, who founded the company more than 40 years ago, is Best Buy's biggest shareholder with a stake of around 20-percent. He resigned as chairman in June, and then proposed to purchase the company for $24 to $26 a share in August – a proposal valued at $8.16 billion to $8.84 billion, or up to $10.9 billion if debt was included.
By September, the Best Buy founder began analyzing the company's confidential financial data. He also began working with private-equity firms Cerberus Capital, TPG Capital and Leonard Green & Partners to arrange financing. These firms sought three board seats in exchange for acquiring a minority stake in the electronics chain. The proposed price of the investment at one point hit $1 billion, one source said.
But Schulze reportedly wasn't able to acquire the proper debt and equity financing to make a formal proposal by the February 28 deadline. One source stated that it is possible Schulze may return with a last-ditch proposal, but highly unlikely. Bloomberg also reports that there is now a "standstill" agreement which grants Schulze two board seats if he doesn't go directly to shareholders or violate other provisions established by the agreement.
"[Schulze introduced the company to] several impressive private equity sponsors who have expressed interest in an investment in Best Buy," Chief Executive Officer Hubert Joly said on a conference call. "But the cost of these investments, however, was determined to be excessive, and dilutive to our existing shareholders. Therefore, the company concluded to not accept these offers."
Wedbusch Securities analyst Michael Pachter said that Schulze essentially believed he could run the company better than current CEO Hubert Joly – who has closed big-box stores and expended the smaller outlets – and its board, but couldn't get other people to back him. Another said that Schulze simply failed to make a compelling case for going private.
Meanwhile, Best Buy is still cutting jobs. The company said earlier this week that it eliminated 400 jobs at its main headquarters as part of a $150 million reduction in expenses. Even more jobs are expected to be cut before the end of the year, the company said.