March 1, 2013 2:43 pm

Best Buy buyout bid fails

Richard Schulze, Best Buy’s estranged founder, has failed in his private equity-backed bid to take over the electronics chain, which reported meagre sales growth but better than expected profits for the Christmas shopping season.

Mr Schulze did, however, persuade a coalition of three private equity groups to invest in the retailer, in return for three seats on its board, but the company rejected their offer, he and Best Buy revealed on Friday.

The private equity groups were TPG, Cerberus Capital Management and Leonard Green and they were prepared to take a large minority stake, according to one person familiar with the situation.

Mr Schulze’s seven-month quest to take over the company expired at a deadline of midnight on Thursday.

Best Buy on Friday published quarterly results that it said showed “renewed momentum” in its US business, which has suffered from competition with Amazon and Apple.

However, Hubert Joly, Best Buy chief executive, said the company was still grappling with several problems inherited from the previous management.

The company warned that profits in the current quarter would be “under significant pressure”.

The bid initiative from Mr Schulze, who owns 20 per cent of the company, came after he left its board in June.

It had posed an instant challenge to Mr Joly, who was appointed last August to revive a company that some analysts said was in irreversible decline.

In a regulatory filing on Friday, Mr Schulze said he had not decided whether he would exercise his right as a major shareholder to appoint two directors.

In the three months to February 2, Best Buy’s like-for-like US sales rose 0.9 per cent, taking total revenue to $16.7bn.

The company posted a net loss of $409m, or $1.21 per share.

Excluding impairment and restructuring charges, its earnings per share were $1.64, ahead of Wall Street expectations.

After an initial morning surge, Best Buy shares fell back to be almost unchanged, down 0.1 per cent at $16.39 by mid afternoon.

Mr Schulze initially said he was prepared to buy the company for between $24 and $26 per share.

The company’s shares had risen to more than $21 on the day Mr Schulze first announced his bid plans.

Mr Joly said he was focused on improving Best Buy’s like-for-like sales and profitability via several initiatives from accelerating online growth and increasing store productivity to reforming its supply chain to reduce the cost of goods, and cutting expenses.

He pointed out that Best Buy had closed 39 big box stores in 2012 and would close five to 10 more this year.

Best Buy said its profit margins would be under pressure in the current quarter due partly to its new policy of matching the prices of rivals – including Amazon – and a lack of new product launches.

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