Best Buy needs to take founder's offer

Richard Schulze may finally bid for the company this week. It's the company's last, best hope.

By Jonathan Berr Dec 13, 2012 11:17AM
Credit: BRENDAN MCDERMID/Newscom/RTR
Caption: People walk past a Best Buy store in New York in August 2012Best Buy's (BBY) founder Richard Schulze may finally be ready to take the struggling consumer electronics retailer private.

According to the Minneapolis Star-Tribune, Schulze will make an offer of $5 billion to $6 billion for Best Buy "by the end of the week, possibly on Friday."  The story is sourced to a single anonymous source that may be Schulze or someone working for him.  Not surprisingly, shares of Best Buy are surging.  CNBC's David Faber wasn't able to confirm the paper's story.  He notes that private equity bidders may reluctant to sign off on the bid until Best Buy's holiday sales performance becomes clearer.

Schulze, who has secured private equity backing, may be the last, best hope for the company he founded in 1966.  Same-store sales, a key metric, have slumped in eight of the past 10 quarters. The company reported a net loss of $13 million in the latest quarter, a performance CEO Hubert Joly declared as "clearly unsatisfactory." The company will have much easier time reinventing itself outside the glare of the public markets.  Even then, it won't be easy.

Schulze, who was forced out of the company after the board found he helped cover up an affair that former CEO Brian Dunn was having with a female subordinate, may be forced to close some stores and fire employees given the poor state of its finances. Best Buy has about 1,000 U.S. stores, up from 923 in 2008. The chain has a workforce of about 170,000.

For years, consumers flocked to Best Buy because it offered unsurpassed selection and service.  That edge has eroded over the years. Oftentimes consumers check out the goods in Best Buy's bricks-and-mortar stores only to buy them at online rivals such as Amazon.com at significantly lower prices. The practice is called "show rooming" and the company has acknowledged it is a problem. Consumer electronics have become increasingly commoditized, meaning that consumers care more about prices than brands. For specialty retailers such as Best Buy, that's bad news.

If Schulze is successful, he should retain Best Buy's existing management team. Joly, who was named CEO in August, hasn't minced words about the chain's precarious financial state.  Investors are also keen on CFO Sharon McCollam, who is credited with turning around Williams-Sonoma (WSM).

Unfortunately, Best Buy has little choice but to take his offer unless it is ridiculously low.
In the end, Schulze may find that the only thing tougher than having a big dream is making it come true. 

2Comments
Dec 14, 2012 12:43PM
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Who care about proof reading a story. To much time on your hands.  Now this is where bama-o-rama can step in and sell Best buy to the union. All states should be right to work. Unions have killed many companies in best buy case it killed itself. The biggest change in best buy is they removed the overhed of the security at the front door. They have also improved their return policy. If they get taken private they will have a slim chance of making it back to the green however the outlook is not bright.
Dec 14, 2012 5:58AM
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Does anyone proofread anymore? Geez!
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