Best Buy Buyout: Ex-CEO Rounds Up Private Equity Giants, Financing
Best Buy Co., Inc. (NYSE:BBY), the No. 1 U.S. electronics chain, got a boost Wednesday after a report named four high-powered private equity managers that have been recruited by founding CEO Richard Schulze to stage a buyout.
Shares of Best Buy rose 45 cents to $17.42, more than 2.5 percent, in the first hour of trading, valuing the Richfield, Minn., chain at nearly $5.9 billion.
Still, a report by Reuters said, the buyout amount could be as high as $10.9 billion.
Schulze, 71, who founded the company and retains a 20 percent stake, has been trying to take Best Buy private for several months and was given time by the board to come up with financing.
Sources who spoke to Reuters identified the four equity managers as Apollo Global Management LLC (NYSE: APO) and Cerberus Capital Management LP, both of New York; Fort Worth, Tex.-based TPG Capital LP; and Leonard Green & Partners LP of Los Angeles.
Apollo, which went public last year, was previously involved in big-box retail. In 2006 it acquired debt-laden Linens n’ Things -- then a major competitor to Union, N.J.-based Bed Bath & Beyond Inc. (NASDAQ: BBBY). Two years later the company filed for bankruptcy. Apollo’s stock price fell 2 percent to $14.08 in Wednesday trading.
Leonard Green specializes in retail. Past acquisitions have included Rite Aid Corporation (NYSE:RAD) of Camp Hill, Pa., and Austin, Tex.-based Whole Foods Market, Inc. (NASDAQ:WFM). Current assets include The Container Store, Inc., of Coppell, Tex., and Conshohocken, Penn.-based David’s Bridal.
TPG and Leonard Green have joined forces in the past, most recently with the $1.4 billion acquisition in July of Savers Inc., the thrift store chain
One source said not to expect a buyout proposal before mid-November, very close to the 60-day deadline Schulze agreed to in exchange for access to the company’s books in order to engage in due diligence with potential investors.
The starting date of the countdown hasn't been disclosed. If after 60 days Schulze doesn’t have an offer he has agreed to a cool-down period that would allow recently named CEO Hubert Joly time to turn the company around free from the buyout pressure.
Under the terms of the agreement, Schulze could have up to six financing sources, according to Reuters.
It won’t be easy for Schulze to come up with as much as an estimated $10.9 billion. The founder himself would put up $1.6 billion. Credit Suisse Group (NYSE:CS) had previously been named to handle the approximately $2 billion in debt, not including the company’s store lease agreements.
If a buyout offer comes out of the review of Best Buy’s confidential financial information, Schulze and his investors would face a big challenge in turning around a company that has been battered by online retail.
Electronics in particular seem well suited for online commerce, and Best Buy has acted as the brick-and-mortar showroom for virtual stores like Seattle’s Amazon.com Inc. (NASDAQ: AMZN).
Best Buy reported a dismal fiscal second quarter ended Aug. 4. Same-store sales sagged 3.2-percent. Earnings plunged 90 percent to just $12 million or 4 cents a share from the year-earlier figures. The chain has seen earnings drop in eight of its past nine quarters.
Under Joly’s direction, the company is currently engaged in a massive reorganization that includes opening hundreds of smaller, leaner mobile-tech oriented outlets. It's in the process of shutting 50 of its big- box stores in the U.S. while placing more focus on e-commerce efforts.
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