Best Buy Said to Resume Schulze Talks on Due Diligence

Best Buy Said to Resume Talks With Schulze on Due Diligence
The largest U.S. electronics retailer has lost 13 percent of its value this week as investors bet that Schulze’s Aug. 6 proposal to buy it for as much as $9.5 billion is becoming less likely. Photographer: Chris Goodney/Bloomberg

Best Buy Co. has resumed talks with founder Richard Schulze about an agreement that would allow him to conduct due diligence in his effort to acquire the company, said two people with knowledge of the matter.

Best Buy initiated the discussions shortly after announcing quarterly earnings that missed analysts’ estimates on Aug. 21, said one of the people, who asked not to be identified because the negotiations are private. The two sides may reach an agreement later this week, or talks could again break down, the person said.

The largest U.S. electronics retailer has lost 13 percent of its value this week as investors bet that Schulze’s Aug. 6 proposal to buy it for as much as $9.5 billion is becoming less likely. Interim Chief Executive Officer Mike Mikan said Aug. 21 on Best Buy’s earnings conference call that the due diligence offer still stands.

“Schulze needs a next step to rally support,” Matt Arnold, an analyst at Edward Jones & Co. in Des Peres, Missouri, said yesterday by telephone. He rates Best Buy as hold. “It seems there’s very little confidence that something like that is going to materialize.”

Best Buy rose 2.1 percent to $18.10 at 9:45 a.m. in New York. The shares dropped 24 percent this year through yesterday.

Schulze has resisted Best Buy’s offer to access confidential financial information because of restrictions the company is seeking as part of such an agreement, the people familiar with the negotiations said. Richfield, Minnesota-based Best Buy, for example, wants to limit Schulze’s ability to contact the board and management or to replace directors if the company rejects his takeover proposal, said these people.

Scuttled Talks

Best Buy is also asking for a fully committed offer from Schulze within 60 days and is stipulating that it remain in place for several months, the people said. Schulze is seeking 90 days to obtain financing and doesn’t want to incur millions of dollars in fees for keeping commitments together for an extended period, they said.

Similar points scuttled talks this past weekend, prompting Best Buy to announce that negotiations with Schulze were at a standstill. The company also hired Hubert Joly as its new CEO.

Schulze was willing to agree to a five-month lock-up with no restrictions on his ability to replace the board if it rejected his offer. Best Buy initially wanted an 18-month lock-up and later modified that to 12 months, before reducing that to four months with limits on Schulze’s ability to speak with Best Buy’s management or replacing the board, one of the people said.

Committed Financing

Best Buy is willing to waive a Minnesota takeover law that Schulze says is limiting his ability to line up private-equity investors and committed financing, the person said.

The sides’ law firms, Simpson Thacher & Bartlett LLP for Best Buy and Shearman & Sterling LLP for Schulze, were in talks over the weekend before negotiations collapsed Aug. 19.

Steve Lipin, a Best Buy spokesman who works for Brunswick Group, said the company had no comment. David Reno, a spokesman for Schulze, declined to comment by e-mail.

Along with the law firms, Goldman Sachs Group Inc. is negotiating for Best Buy and Credit Suisse Group AG for Schulze, said one of the people. Spokesmen for Goldman Sachs and Credit Suisse declined to comment.

Schulze is likely willing to give in on the demand for an offer within 60 days, the person said.

The New York Times reported yesterday that talks between Best Buy and Schulze were continuing.

Suspended Forecast

The company reported Aug. 21 second-quarter profit that trailed analysts’ estimates and suspended providing an earnings forecast as sales of computers and televisions dropped.

This week Best Buy named Joly as CEO to oversee a turnaround plan that entails shifting to smaller locations in a bid to fend off Inc. and Wal-Mart Stores Inc. Joly, CEO of Carlson Cos., a Minneapolis-based operator of hotels, restaurants and a travel agency, will take over in September, replacing Mikan.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE