14/12/2012 16:43:00

UPDATE: Best Buy, Founder Schulze Extend Buyout Offer Period

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--Deadline delayed to give founder more time to come up with financing

--Pact means any offer, at earliest, would come in February

--Shares plunge after surging day before on report a financed offer was coming this week

(Updates with further details of agreement, context throughout)

By Joan E. Solsman and Sharon Terlep

Best Buy Co. (BBY) gave its biggest shareholder, Richard Schulze, more time to put together a buyout proposal, dashing hopes an offer was imminent and sending shares of the struggling consumer-electronics retailer down as much as 18% Friday.

The two sides agreed to push back the deadline in order to give Mr. Schulze more time to come up with the bank financing to make an offer that shareholders would be likely to consider, according to people familiar with the discussions.

Mr. Schulze continues to work with private-equity firms and did have the ability to secure financing via banks for a low-ball bid, one of the people said. Under an earlier agreement with the company, had he made such a bid and saw it rejected, he would have secured another month to return with a better offer.

By agreeing to delay the timetable for a bid, the two sides cut out that step. Under the new agreement, Mr. Schulze may make a bid for the world's biggest electronics chain in February, and the board then has 30 days to respond.

As part of the deal announced Friday, the deadline to appoint directors has been pushed back to mid-March, which means Mr. Schulze still has enough time to pursue a hostile takeover should Best Buy reject an offer in February.

Shares of Best Buy plunged 15% to $12 in recent trade, after notching its biggest share gain in four years on Thursday. The decline--shares fell as low as $11.60 Friday--brought the stock back to where it traded before reports of a possible new bid this week from Mr. Schulze.

The postponement gives private-equity investors and potential financiers time to see the company's holiday sales figures. And it enables Best Buy to get through the holiday season without the overhang of negotiations with Mr. Schulze.

Best Buy is scheduled to report its holiday sales on Jan. 11 and its full-year results on Feb. 28.

Recently, analysts have predicted Best Buy's performance this quarter--if better than its third-quarter loss with sharply dropping cash flow--won't be particularly strong. They note online rival Amazon.com Inc. (AMZN) appears to continue to take market share, store checks reveal sparse crowds compared to other brick-and-mortar chains like Wal-Mart Stores Inc. (WMT), and aggressive promotions are on track to flatten margin.

The delay also gives the company's new management, headed by French turnaround specialist Chief Executive Hubert Joly, time to flesh out their strategy and see if it gains traction.

Mr. Joly, who started at Best Buy in September, has made headway with investors and analysts by acknowledging some of the company's operational failings and outlining general plans to right them, but his turnaround presentation in October dismayed some for lacking specific timelines or addressing Best Buy's international operations.

Mr. Schulze, who founded the company in 1966 and remains its biggest shareholder with a roughly 20% stake, previously faced a mid-December deadline to make an new buyout offer on the company. Had he missed that deadline, a standstill agreement would have prevented him from making more moves until late August.

Thursday, the Star-Tribune newspaper reported Mr. Schulze planned to make a financed, $5 billion to $6 billion bid with private equity firms Cerberus Capital Management LP, Leonard Green & Partners LP and TPG Capital LP this week, based on an unnamed source.

In August, Mr. Schulze's had offered $24 to $26 a share to buy the company, worth about $8 billion at the low end. At the time, Mr. Schulze said he was prepared to roll over at least $1 billion of his own equity--and potentially all of his existing stake depending on the ultimate terms of agreements with private-equity firms--into the deal.

The market has long discounted Best Buy's stock below Mr. Schulze's expected price. On the day of Mr. Schulze's initial proposal, shares still stayed 10% below the low end of the offer and have fallen since. Sentiment about his efforts dropped further in the last month, as Mr. Schulze activated his first deadline extension.

Doubts have persisted about his ability to secure financial backing. Investment partners would need to commit substantial capital in a retailer facing multiple headwinds, and Mr. Schulze helped lead the company during its slow response to a changing market.

Best Buy's big-box stores once dominated the industry with its one-stop shopping for an array of electronics, and it remains the largest gadget seller in the world with $50 billion in sales.

But the company's sales have dwindled as it failed to pivot while e-commerce morphed many key areas of its business. Internet competitors with lower cost structures, especially Amazon.com, have siphoned away customers with convenience, wider product assortment and competitive prices, while music demand has shifted to digital forms and television sales no longer enjoy the tailwind of a flat-screen upgrade cycle.

--Saabira Chaudhuri contributed to this report.

Write to Joan E. Solsman at joan.solsman@dowjones.com and Sharon Terlep at sharon.terlep@wsj.com.

Subscribe to WSJ: http://online.wsj.com?mod=djnwires

(END) Dow Jones Newswires

December 14, 2012 11:43 ET (16:43 GMT)

Copyright (c) 2012 Dow Jones & Company, Inc.

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