4. Schulze's Imaginary Friends
Somebody go dig up novelist Thomas Wolfe and send him to Minnesota. If he can't convince Best Buy (BBY) founder Richard Schulze that you can't go home again, then nobody can.
In either a crazed fit of nostalgia or just plain craziness, Schulze, who started the company in 1966, proposed a $24 to $26 per share purchase of the struggling big-box electronics retailer Monday. Schulze's offer would come at a premium of 36% to 47% to the company's Aug. 3 close in a buyout that would be the biggest since the financial crisis. Best Buy shares rose over 13% on Monday to around $19, limiting the stock's 2012 loss to 15%."This proposal represents a unique win-win opportunity for everyone involved," Schulze said in a letter to Best Buy's board, adding that he planned to bring back executives from the company's glory days to turn things around. Not to rain on Schulze's attempt at a homecoming parade, but let's review the facts. In fiscal 2012, Best Buy lost $1.2 billion as margins and sales struggled to grow. Meanwhile, the Richfield, Minn.-based retailer shuttered dozen of stores and shed hundreds in staff in the past year, including Schulze as chairman and Brian Dunn as CEO over Dunn's "personal conduct" issues. And, just this week, ratings agency Standard & Poor's downgraded Best Buy's bonds to BB+, a sub-investment-grade rating otherwise known as "junk," as a result of Schulze's very own proposal. Oh, man. Take off the blinders, Schulzie-boy. We know this company is your baby. However, it's clearly time to let go, not get back in. And, to be honest, we aren't sure if he can pull it off anyway. Subtract Schulze's $1 billion equity stake in the company and he needs to line up an additional $7.8 billion in financing. That's no easy feat considering most private equity players are still digesting the dreck they purchased prior to the financial crisis, so even with Wall Street's short memory, it's hard to imagine them stomaching a deal this size. For his part, Schulze says he has the lenders to do the deal, even though some wacky Minnesota law says he doesn't have to name them. Schulze says in his letter that Credit Suisse is "highly confident it can arrange the necessary debt financing." To us and the market's arbitrageurs, however, that sounds an awful lot like Carl Icahn's bluster when he went after Clorox last year. During that failed bid, Jefferies similarly maintained that it was "highly confident" it could help Icahn raise $7.8 billion in debt, much to the market's skepticism. Of course, it was quite clear from the start of that escapade that Icahn was more interested in shopping the company than owning it. Once his offer failed to spawn a bidding war, the billionaire investor skulked off. Unless Amazon (AMZN) steps in to buy Best Buy's stores -- heck, they already use the chain as its showrooms -- we can't imagine another bidder stepping up to top Schulze and his imaginary lenders. So, unlike Icahn, he really must be angling to take over the company. Too bad Best Buy looks more like a takeunder candidate at this point, despite Schulze's wishful and, undoubtedly, wistful thinking.
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