Shares of Best Buy (BBY) closed down 19 cents, or 1%, at $19.70 today after chairman and founder Richard Schulze announced this morning he will resign his post �in order to explore all available options for my ownership stake,� which is�20% of the shares outstanding. Schulze has been a director for 36 years.
He had previously intended to step down after the next fiscal report, on June 21st, and to remain a director for a year, but today’s departure is effective immediately, as the company disclosed on May 14th.
The company said Schulze will be replaced with board member Hatim A. Tyabji ,�a director since 1998 and the CEO of telco technology provider�Bytemobile.
Best Buy is currently seeking a new CEO after former chief Brian Dunn was let go after allegations that he had a personal relationship with a Best Buy employee.
In response JP Morgan‘s�Christopher Horvers wrote that Schulze’s abrupt departure amounts to� “making a statement,” the statement being that he intends not to sell his position, but rather to try and gain greater control of the “strategic direction” of the company.
“While the structural bear case remains the dominant thesis, if the market is pushing the stock lower based on the potential liquidation of Schulze’s stake, we think that is the wrong way to interpret it,” writes Horvers.
Horvers sees some prospect for an LBO of the company, though it would be tricky:
One option that has been suggested is whether Schulze can use his stake and pursue a leveraged management buyout. with LBO models, the math can often work, particularly with a company trading at 2.3x 2012 EV/Ebitda. The uncertainty around sales and margin projectiosn is substantial, however. Also BBY is paying $3.5 million per store to close 50 stores this year and the $800 million cost savings program (~1.5% of sales) needs to fund price and store investments. Finally, the deal is large with BBY’s enterprise value at $6 billion currently and presumably there would be a premium.
On the other hand, Citigroup’s Kate McShane this afternoon reiterated a Sell rating on Best Buy, and an $18 price target, writing that the stock’s decline today marks “another sign of a loss of confidence in the company. We don’t think the announcement today changes anything in the story.” That story includes a “weak product cycle” in consumer electronics, she thinks, and increasingly thrifty consumers.
No comments:
Post a Comment