Best Buy Company Inc. (BBY) agreed to open its financial statements to founder and former chairman Richard Schulze, thereby allowing him to pursue his plan of buying the beleaguered retail chain.
As per the agreement, Schulze will have access to certain due diligence information and will also be allowed to form an investment group with private equity sponsors in order to take the company private. Further, he will receive two board seats for possessing 20.1% ownership stake in the company.
Best Buy has long been struggling with dwindling sales in key categories including televisions, notebooks, digital imaging and gaming devices, which in turn, is taking a toll on the company’s same-store sales results.
Moreover, heightened competition from online retailers like Amazon.com Inc. (AMZN), is adversely affecting its sales and profitability as the online retailers are gradually encompassing new merchandise categories under their purview and offering huge discounts on products with free shipping services to attract customers.
In the recently concluded quarter, earnings of this consumer electronic products retailer came in at 20 cents per share, down 49% from 39 cents in the year-ago quarter, and also short of the Zacks Consensus Estimate of 31 cents. On a reported basis, including one-time items, quarterly earnings substantially plummeted to 4 cents per share from 34 cents.
On one hand, this slide in earnings challenges Hubert Joly, the newly appointed Chief Executive Officer, with the task of completely revamping the operations, while on the other, the company’s dismal results strengthens the position of Richard Schulze.
Coming back to the agreement, even if the Board rejects his proposal, Schulze can make another offer in January 2013. However, on rejection of the second proposal, Schulze will not pursue an acquisition for a year.
In June, Schulze stepped down from his position after serving for almost four decades in the company. Prior to that, Best Buy’s CEO, Brian Dunn, resigned abruptly, following an internal probe relating to his improper relationship with a female employee.
Currently, we have a long-term Underperform recommendation on the stock. Moreover, Best Buy, which faces competition from Wal-Mart Stores Inc. (WMT), holds a Zacks #4 Rank that translates into a short-term Sell rating.
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