NEW YORK, N.Y. - Best Buy Co. Inc. and its founder and former chairman Richard Schulze say they have an agreement that will allow Schulze to pursue his plan to try to buy the nation's largest consumer electronics chain.
The news sent Best Buy shares up 3.2 per cent to close at $17.87 Monday.
Best Buy said the agreement will allow Schulze to get access to confidential financial statements and allow him to form an investment group with private equity sponsors to make the bid. He already owns 20 per cent of the company's stock.
The agreement is the first step toward Schulze making an official bid for the company, as Best Buy tries to turnaround results and adjust to a new CEO. Earlier this month, Schulze suggested he could pay $24 to $26 per share for the chain. Best Buy had said it was considering the overture. The talks stalled a week ago, with the two going back and forth in public exchanges.
The retailer says the agreement establishes a non-exclusive orderly process for a bid while protecting the interests of all shareholders. Schulze says the agreement will allow him to examine the company's books in detail.
Under the agreement disclosed Monday, Schulze and his potential partners will then have 60 days to present a fully financed proposal.
Analysts say the agreement is a step in the right direction for Schulze.
"(Schulze) had a zero probability of raising equity without due diligence, and now that zero is up to a 15 or 20 per cent chance," said Wedbush Securities analyst Michael Pachter. "Private equity firms want to understand their investment and return, and in order to understand that you have to be able to look at the books."
If Best Buy's board reject's Schulze's proposal, they will have until January 2013 to present a second proposal. Best Buy's board would have 30 days to review the second proposal before Schulze can take the offer directly to shareholders at the company's annual meeting or a special meeting. If the second offer is turned down by both the board and Best Buy's shareholders, he would have to wait one year before offering another proposal.
Best Buy's public fight over its future comes as it has been engulfed in mounting controversy since April when former CEO Brian Dunn resigned amid a company investigation into an "improper relationship" with a 29-year-old female employee. Schulze resigned as chairman a month later after the probe found that he knew about the relationship and failed to alert the board or human resources.
The series of bad news that has followed is happening as Best Buy fights to reverse a decline in its business due to a weak global economy and consumers' changing shopping habits. Best Buy's stores are becoming unprofitable as customers increasingly use them to browse for electronics, then buy them cheaper online or elsewhere. On top of that, shoppers are no longer snapping up big TVs and computers at a fast clip like they used to, instead opting for smaller gadgets like cellphones and tablets.
Last Monday, the day after talks with Schulze stalled, Best Buy announced it had tapped Hubert Joly, the former head of global hospitality company Carlson and a turnaround expert, as the new CEO and president. Investors, looking for a replacement with prior retail experience, didn't like the choice. Consequently, shares fell more than 10 per cent.
The latest quarterly results, announced a day later, underscored the company's challenges. Best Buy withdrew its full-year earnings guidance after reporting a 90-per cent drop in net income during the second quarter, dragged down by restructuring charges and weak sales.
During the period ended Aug. 4, U.S. sales growth in tablets, mobile phones, appliances and e-readers helped offset declines in gaming, digital imaging, televisions and notebook computers. Best Buy said the international business was dragged down by lower revenue in China, Canada and increased competition in Europe.