The company which has lately is best known as Amazon's physical showroom, aka Best Buy, is in play once again, this time on yet another highly dubious speculation of a takeover by the company's founder, Richard Schulze, who has offered to take the company private at $24-26/share. So far so good. The problem: a highly confident letter by Credit Suisse meaning zero fixed financing is in place. Frankly, it is surprising Jefferies did not engage here, because as those who have observed the kinds of "weak" MBO offers as this one will certainly be, "highly confident" financings almost never work out, especially those which assume to refi $1.7 billion in debt for a distressed company. It gets better: Schulze has not even done due diligence for which he is asking the board's permission. Expect the initial pop on the headline to fizzle very quickly the realization that the probability of this deal actually happening is negligible (see every other "highly confident" take over by Trian's Nelson Peltz virtually all of which have fizzled in the past 3 years).
Best Buy Co. founder Richard Schulze, who stepped down as chairman this year, offered to take the electronics retailer private at $24 to $26 a share, according to a copy of a letter he sent to the board today.
Credit Suisse Group AG, Schulze’s financial adviser, is confident it can obtain financing for an offer, according to a draft of the letter obtained by Bloomberg News. The midpoint of the range gives the company an equity value of $8.5 billion. Schulze, who held more than 20 percent of Best Buy as of June, plans to contribute $1 billion in equity from that stake, the letter shows.
The rest of the money will come from what the letter calls “premier private-equity firms with deep experience in retail who are interested in a possible acquisition of Best Buy” and debt financing. The Richfield, Minnesota-based electronics chain had about $1.7 billion in long-term debt as of May 5, according to regulatory filings.
“I have been actively exploring all available options for my ownership stake,” Schulze, 71, said in the letter. “That exploration has reinforced my belief that bold and extensive changes are needed for Best Buy to return to market leadership and has led me to the conclusion that the company’s best chance for renewed success will be to implement these changes under a different ownership structure.”
Best Buy shares rose 1.4 percent to $17.64 Aug. 3 in New York trading. Schulze’s offer would be at least 36 percent more than that closing price. Sue Busch, a spokeswoman for Best Buy, said she couldn’t immediately comment. Through a spokesman, Schulze declined to comment on the letter.
Schulze is seeking the board’s permission to conduct due diligence on the electronics retailer and form a group including private-equity funds and other executives that would make a more complete offer. Under Minnesota corporate law, Schulze needs permission from company directors to form such a group. His offer will have no deadline as yet, and it’s subject to being able to conduct due diligence.
“With the board’s agreement that I may work together with potential private equity partners and former senior executives, and with timely access to relevant non-public company information, I am confident that the necessary due diligence could be completed expeditiously and a binding agreement to acquire Best Buy could be reached quickly,” Schulze said. “I am prepared to enter into a customary confidentiality agreement and begin work immediately.”