Best Buy Co. shares soared nearly 16 percent Thursday after news of founder Richard Schulze's plans to submit a bid to buy the struggling consumer electronics retailer by week's end.
With a Dec. 16 drop-dead deadline for an offer fast approaching, analysts said investors had lost confidence that Schulze would actually pull the trigger.
"It seemed the odds grew longer that we were going to see anything," said Colin McGranahan, a retail analyst with Sanford Bernstein & Co. "There was no chatter."
But that all changed Thursday after news reports that Schulze would definitely make an offer before the deadline, most likely on Friday or Saturday. Best Buy's stock jumped 15.93 percent, or $1.94, to close at $14.12 a share. About 41 million Best Buy shares changed hands, more than five times the normal daily trading volume.
Founded by Schulze as a single store in St. Paul in 1966, Best Buy has grown into a global retail powerhouse with more than $50 billion in annual sales and more than 100,000 employees. But the company has struggled to grow sales as more shoppers flock to the Internet to buy televisions and computers.
As a result, Schulze said he believes Best Buy will only survive if it goes private, allowing executives to make changes without upsetting Wall Street.
Over the past weekend, Schulze and his team secured agreements to finance a buyout deal from bankers and private equity investors, which include Cerberus, Leonard Greene & Partners and the Texas Pacific Group, according to a source close to Schulze. On Thursday, Schulze met with his top advisers, including former Best Buy CEO Brad Anderson and former president Al Lenzmeier, in Minnesota as they prepare to move forward, the source said.
Talk on Thursday quickly turned to two questions: How much will Schulze offer investors and will Best Buy's board of directors accept or reject? Under the original negotiating terms between Schulze and Best Buy, Schulze can make a second offer in January if the board rejects his initial bid.
Some institutional investors have said they would sell their stakes for as little as $16 to $19 a share. But other analysts suspect Schulze will need at least $20 a share.
"I don't think a deal gets done unless it begins with the number 2," said David Strasser, a retail analyst with Janney Capital Management.
In any case, the board is likely to reject Schulze's first offer. Whenever there is a possible acquisition, the buyer usually bids low at first and then offers a higher number.
"You don't want to overpay for an asset," McGranahan said. "He wants to pay the least amount to buy it."
At the same time, the board needs to demonstrate that it tried to maximize shareholder value by pushing Schulze to raise his bid, analysts said.
But given the months of discussion between Schulze and Best Buy, the two sides probably already know the ultimate price that will seal the deal, McGranahan said.
"This is not a normal situation," he said.
Even if Schulze makes a bid, investors might not immediately hear about it. The company said it will not announce it received an offer unless Schulze makes it public first, or if news of the bid leaks to the media.
Thomas Lee • 612-673-4113