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Best Buy Co., Inc. (BBY): Is the Company Going Private?

In July, Best Buy Co., Inc. (NYSE:BBY) founder Richard Schulze floated a proposal to take the struggling Minneapolis-based company private. The proposal involved using a considerable amount of his own money as well as a sizable investment from a consortium of private equity investors to repurchase the bulk of the company’s outstanding shares at around $25 per share. The total value of the deal would approach $6 billion. At Best Buy’s current stock price of $12.26, a $25-per-share buyout would represent a 100 percent premium for current shareholders.

The proposed deal languished for several months until Schulze’s December 13, 2012 announcement that he was actively raising capital to finance the bid. The company’s stock rose by nearly 20 percent on the news. However, the euphoria was quashed the next day by a press release from Best Buy’s board of directors. The release indicated that the deal was not imminent and set a February 28, 2013 deadline for Schulze to file a formal bid with the company. Best Buy’s stock fell by nearly 15 percent on the news.

Best Buy Co., Inc. (NYSE:BBY)Although a formal bid has yet to be put together, it seems likely to involve simple cash payments to current Best Buy shareholders. Aside from Schulze, it is unclear whether any current or former members of Best Buy’s management team would retain significant holdings in the company. Likewise, it is unclear whether any of the company’s divisions would be spun off into publicly-traded entities.

The proposed deal would be conditioned upon approval by Best Buy’s board of directors as well as a customary shareholder vote. While the company’s board might prove reticent to accept a deal that many perceive as unfavorable, Schulze’s willingness to pay a significant premium for the company suggests that shareholder approval is all but assured. If the bid is approved by both parties, it could close by the end of the first quarter of 2013. Further negotiations could push back its closing date into the second quarter of 2013 or beyond. The deal could also be delayed by infighting between Schulze and other interested investors.

Best Buy’s Business Today

Best Buy is a major electronics and software retailer with operations in North America, Europe and Southeast Asia. It sells televisions, recording equipment, cell phones, computers, mobile devices, and sound systems for cars and homes. Best Buy also contracts with major wireless providers to sell calling and data plans in its stores. In addition, it operates an e-store and a traveling device-repair service known as the “Geek Squad.” It maintains nearly a dozen different retail divisions that typically concentrate in well-defined geographical areas, including Best Buy, Future Shop, Five Star, Carphone Warehouse and Magnolia Audio Video.