Best Buy Co. founder Richard Schulze is working with three private-equity firms, including Cerberus Capital Management LP, on a takeover of the electronics chain as his deadline to review the company’s finances nears, said people familiar with the matter.
Schulze, 71, is asking the retailer for an extra 30 days to conduct due diligence, said the people, who asked not to be named because the process is private. TPG Capital and Leonard Green & Partners LP also are working with Best Buy’s former chairman on arranging financing, they said. The three private-equity firms are working separately for now, said one of these people, though could work together eventually on a final bid.
Schulze and these firms have been studying Best Buy’s confidential financial data since mid-September. The retailer granted him 60 days to put together a proposal after he revealed Aug. 6 that he would offer as much as $26 a share for the company. Other firms such as Apollo Global Management LLC and KKR & Co., which had considered bids, are now unlikely to work with Schulze on an offer, according to one of the people.
Schulze and his allies pressed for the 30-day extension, which would take them into late December, so they could see how Best Buy performs over the holidays before they agreed to fund what would be one of the largest buyouts in years, said one of these people. The retailer, which lost $1.2 billion in its latest fiscal year, is working to improve same-store sales amid escalating competition from Amazon.com Inc. and Wal-Mart Stores Inc.
Today the company said profit in the third quarter ended Nov. 3 was 3 cents a share, excluding some items, falling short of the average analyst estimate of 12 cents, according to data compiled by Bloomberg. Best Buy also reduced its forecast for free cash flow for the year to at least $850 million, from a previous minimum of $1.25 billion.
Best Buy’s finances have deteriorated so much in recent months that some of the private-equity funds have gone back to their investment committees to warn them of the changes, said another person involved in the process. Amy von Walter, a spokeswoman for Richfield, Minnesota-based Best Buy, declined to comment. A spokesman for Schulze didn’t return a call or e-mail seeking comment.
John Dillard, a spokesman for Cerberus at Weber Shandwick, and Michael Gennaro, Leonard Green’s chief operating officer, didn’t return calls seeking comment. Owen Blicksilver, a spokesman for TPG at Owen Blicksilver Public Relations, declined to comment.
Best Buy has received Schulze’s request for the extension and may grant it in the next few days, said one of these people. Best Buy and its financial and legal advisers are holding off on the approval to see if Schulze has made progress in lining up financing, said this person.
While one of the three private-equity firms has told Schulze it could provide financing solo, the founder’s camp would prefer to have two or more entities working together so no one has too much influence, said another person.
Schulze, who is working with Credit Suisse Group AG on the financing for the deal, is also receiving advice from Jack Ryan, a former Goldman Sachs Group Inc. banker in Chicago who briefly ran a campaign for U.S. Senate against Barack Obama in 2004, said these people.
Schulze and former Best Buy Chief Executive Officer Brad Anderson are meeting this week with current Best Buy CEO Hubert Joly, said two of the people. Anderson is taking a growing role in Schulze’s effort to line up investors in a buyout, said one of these people.
Schulze, who still owns more than 20 percent of the retailer, offered Aug. 6 to take Best Buy private at $24 to $26 a share. Its falling stock price and declining earnings have made some directors more willing to pursue a deal with Schulze, a person familiar with the matter said last week. Best Buy sank 13 percent to $11.96 at the close in New York.