(Best Buy earnings, buyout story, updated to reflect analyst comments and additional company data)
NEW YORK (TheStreet) -- After Best Buy (BBY) reported worse than expected second quarter earnings and declined to provide any outlook on the year's second half, it's time for the company's founder and former chairman to put up or shut up on a takeover offer that could reach nearly $9 billion.
On the heels of the top and bottom line earnings miss on Tuesday -- in addition to Best Buy's suspension of earnings guidance and a share buyback program -- both the company and founder Richard Schulze need to get serious about whether a private takeout is in the cards, after months of speculation. Investors are now more likely than ever to accept a premium-priced buyout offer as Best Buy's shares tumbled to a value as low as $16.31 in early Tuesday trading -- their lowest level since 2002 -- though shares made up much of the early 10% dip by Tuesday afternoon amid heavy trading.
The take-private deal unveiled by Schulze on Aug. 6 hit new snags on Monday, when Best Buy said Schulze declined to conduct due diligence in his $24 to $26 per share buyout proposal.Schulze had publicly challenged a seemingly hesitant Best Buy board to open its books since announcing his takeover offer. The big box electronics retailer said on Monday that Schulze didn't accept the company's offer to open its books and waive Minnesota laws that would prevent a private equity buyout proposal, a move that caused analysts to question whether the bid has stalled, and precipitated a freefall in Best Buy shares that continued after Tuesday's earnings. The gamesmanship continues on both sides of the Best Buy divide: Schulze contends he wants to move fast on a takeover as the Richfield, Minn.-based company's earnings tumble. The Best Buy founder argues he can't sit on an offer until January -- a look at the books would entail deferring a takeover proposal or tender offer to 2013. The jury remains out on whether Schulze is a legitimate bidder, but his complaint that timing is everything isn't without merit. Liquidity at Best Buy appears to be a concern after the company reported a 67% drop in cash to $680 million from the year-ago level. Still, Best Buy said it expects to earn $1.25 billion to $1.5 billion in free cash flow for the year, a cash generation level that may yet appeal to the debt and private equity investors needed to make a private takeover happen. In a complicated dance between Schulze and his former company, one thing is clear: Shareholders and analysts aren't buying into either Best Buy's turnaround story or its M&A prospects. Best Buy left investors and analysts scratching their heads on Monday when it announced the hiring of Hubert Joly, the former head of hotels operator Carlson Companies to be its CEO, replacing interim chief executive Mike Mikan. "We find Mr. Joly's resume unimpressive, and believe he lacks sufficient experience to engineer a turnaround at Best Buy," wrote Wedbush Securities analyst Michael Pachter in a Monday note to clients. "Should the buyout discussions resume, we would continue to view a buyout by Schulze as unlikely," the analyst added.
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
24/7 market commentary from Jim Cramer and 20+ veteran Wall Street gurus. Get access to the latest trading ideas on stocks, options, and ETFs as well as a real-time forum to see the pros exchanging their investment ideas.
- Jim Cramer + 20 Wall Street pros
- Intraday commentary & news
- Real-time trading forum
- Actionable trade ideas
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass + 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV