This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Cramer's Action Alerts PLUS - See his portfolio and get alerts BEFORE every trade. Learn more NOW!

Best Buy Buyout Hopes Dim on Black Friday



NEW YORK ( TheStreet) - It may be Black Friday at Best Buy (BBY - Get Report), but recent earnings, analyst comments and a a slow burning takeout proposal by the company's founder Richard Schulze, indicate the company's far from a steal in the M&A world.

The question now is whether Black Friday discount euphoria wears onto Schulze and other prospective Best Buy buyout investors after the weak earnings have put the company stock on a holiday season sale.

The Richfield, Minn-based retailer's shares are off over 50% year-to-date and nearly 25% in the past five trading days as falling earnings continue to muddle the company's future in an electronics retail world that's increasingly moving online and into branded manufacturer outlets.

Still, there is the prospect that founder Richard Schulze's long choreographed interest taking Best Buy private gives investors some reason to cheer this holiday season.

After gaining access to the company's books and lowering the price of his takeout proposal to $20 a share from as high as $26 a share, Schulze is running out of excuses to stall a formal offer - were he truly interested in the company.

Brian Sozzi, chief equity strategist for NBG Productions sees reason to believe a Best Buy buyout may be in the cards this holiday season, given the company's sharp stock slide.

"I think it is going to have to be something well under $20," says Sozzi of Schulze's buyout proposal. He adds Schulze may have played a strong hand in moving slowly with a buyout proposal that's still not a formal offer for management or shareholders to consider. "If management doesn't take the cash deal, they are going to be left to die in the public market," he adds of the prospective offer, and highlights the challenges other large publicly traded retailers like J.C. Penney (JCP - Get Report) face in trying to execute transformation strategies.

Lining up alongside customers outside Best Buy stores to size up Black Friday deals, Sozzi says he was disappointed by crowds at the electronics retailer, in contrast to Target (TGT - Get Report) and Wal-Mart (WMT - Get Report) and the discounts likely to be available on Amazon (AMZN - Get Report) on Monday.

As TheStreet noted in August after Best Buy cut its earnings outlook, it's time for Schulze to put up or shut up on a multi-billion dollar takeover proposal that's been discounted by investors since first being floated to the public in August.

Earlier in November, the electronics retailer reported worse than expected earnings that raise questions on the sustainability of the company's finances add to skepticism that the company will be acquired by a competitor or a consortium of private buyers.

On Nov. 21, Jefferies analyst Daniel Binder cut Best Buy's price target to $13 from $18, citing a dimming prospect of a premium priced takeout for the struggling retailer. Binder highlighted deteriorating operating results, weakness in international operations and 'sharply lowered' free cash flow as likely the biggest concerns for prospective buyers.

Meanwhile, Binder adds that earnings are likely to remain challenged by the likes of retailers Wal-Mart (WMT - Get Report) and Amazon (AMZN - Get Report), and an electronics industry shift to Apple (AAPL - Get Report) products, which may last far longer than this year's holiday season.

"Even investors playing this as a speculative trade on a takeout are probably getting nervous at this point as earnings and free cash flow forecasts drop precipitously and potentially lower odds of a deal," wrote Binder, in a note to clients.

On Monday, TheStreet Ratings downgraded Best Buy's stock as a result a waning outlook in coming quarters.

1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Try it NOW
Only $9.95
Try it NOW
14-Days Free
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
SYM TRADE IT LAST %CHG
AAPL $124.43 -1.54%
AMZN $372.71 -0.50%
BBY $37.80 -2.50%
JCP $8.41 7.41%
TGT $82.04 -0.12%

Markets

DOW 17,776.12 -200.19 -1.11%
S&P 500 2,067.89 -18.35 -0.88%
NASDAQ 4,900.8850 -46.5560 -0.94%

Partners Compare Online Brokers

Free Reports

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs