Can Richard Schulze make a good buy out of Best Buy? The billionaire founder and former chairman of the electronics retailer (BBY) last week offered as much as $26 a share, or more than $8.8 billion, to buy the shares he does not already own in the company.
The Minnesota-based Best Buy has been looking for new leadership and a strategy that will help it compete better against Apple’s stores and online retailers such as Amazon.com. CEO Brian Dunn resigned in early April, after the Best Buy board started an independent investigation into his personal conduct. The company announced in May that the investigation found that Dunn had violated company policies by “engaging in an extremely close personal relationship with a female employee that negatively impacted the work environment.” The investigation concluded that Dunn had not misused company resources, but it found that Schulze had known of Dunn’s conduct and failed to report it to the board. Schulze, 71, left the board in June, but he still holds about 69 million shares, or just over 20 percent of the company.
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In May, Best Buy’s board of directors hired recruiting firm Spencer Stuart to search for a new CEO. The company said it would consider internal and external candidates. But Schulze, who founded the company in 1966, believes he’s the guy to bring the company back from the brink.
“There is no question that now is the moment of truth for Best Buy and that immediate and substantial changes are needed for the company to return to its market-leading ways,” he said in a statement announcing his takeover bid. “Under the leadership of proven executives with the knowledge, insight, experience and passion needed to get the company on the right path forward, I am confident we can bring back Best Buy – and that the name over the door will once again mean something special to our customers and employees.”
Investors have so far responded with the market equivalent of the McKayla Is Not Impressed face. Best Buy’s stock opened trading last Monday at $21.60, or 22 percent above where it ended the week before. But the shares slumped over the course of the week to finish at $19.21, well below the price range Schulze had offered. That’s a sign of skepticism that the takeover deal will happen.
“There’s a ton of rationale for it being able to make some big changes away from the public’s watchful eye,” UBS analyst Michael Lasser wrote in a note to clients the day the bid was announced. “But, in this case, we think the challenge of funding a deal will stand in its way.” The Best Buy board is likely to find the proposed price too low, Lasser wrote.
The structure of the deal could also be problematic. Loading Best Buy up with debt could make it more difficult for the company to pay for key moves, like terminating leases in order to shut down unprofitable locations, Lasser wrote.
Credit-rating agencies Standard & Poor’s and Fitch both cut Best Buy’s debt to junk status after the Schulze bid was made public. The deal, S&P credit analyst Jayne Ross said, would add “a significant amount of debt” to Best Buy’s balance sheet. "Depending on the amount of debt to be used in a buyout and our view of a turnaround plan for the company's operations given the changing industry dynamics, we could lower the rating by multiple notches," the analyst said in a statement.
But if – and it’s a big “if,” Schulze’s buyout bid is successful, he would become just the latest in a long line of founders who swooped in to save the companies they created. Just this year, EHarmony’s founder, Dr. Neil Warren Clark, returned to the chief executive role at the matchmaking site. And Urban Outfitters co-founder Richard Hayne stepped in as CEO in January when Glen Senk resigned from the struggling clothing retailer. Still, those founders don’t always bring success back with them – and, in some cases, they may not have the right skills to lead a company past its early years. "We have low confidence that Dick Hayne will be the right leader to usher in the new 'big company' era Urban needs to embrace," Liz Dunn, an analyst at Macquarie Securities, wrote after the Urban Outfitters change.
The track record of such comebacks is decidedly mixed. Here, a look at five other high-profile executives who tried to rescue the businesses they built.
Here are 5 founders that came back to save their companies: