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updated: 1/10/2013 9:56 AM

Holiday sales drop seen for Best Buy may hurt Schulze buyout bid

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  • Few investors have more riding on Best Buy Co.'s holiday sales than founder Richard Schulze. If they perform poorly his efforts to take the world's largest consumer-electronics retailer private will become harder.

      Few investors have more riding on Best Buy Co.'s holiday sales than founder Richard Schulze. If they perform poorly his efforts to take the world's largest consumer-electronics retailer private will become harder.

 
Bloomberg News

Few investors have more riding on Best Buy Co.'s holiday sales than founder Richard Schulze. If they perform poorly his efforts to take the world's largest consumer-electronics retailer private will become harder.

He may be disappointed tomorrow, when Best Buy reports same-stores sales from Nov. 4 through Jan. 5. Mike Baker, a Deutsche Bank AG analyst, and Scott Tilghman of B. Riley & Co. expect a 2 percent drop in sales at stores open at least 14 months. Results worse than that may imperil Schulze's takeover bid, said Baker.

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"If it's a really weak holiday sales report, that may make it more difficult for Dick Schulze to line up investors," he said in a telephone interview. Baker, who is based in Boston, recommends holding the shares.

Schulze, a former chairman, proposed offering $24 to $26 a share for Best Buy in August and later that month reached an agreement that let him conduct due diligence and present a fully financed offer within 60 days. Best Buy last month gave Schulze more time to study the company and arrange financing to take it private. He can make an offer between Feb. 1 and Feb. 28, allowing him to include full-year results in his due diligence, the retailer said in a statement Dec. 14. The board then has 30 days to review and decide on an offer.

Schulze has been working with three private-equity firms, including Cerberus Capital Management LP, on a takeover of the electronics chain he founded more than four decades ago, people familiar with the matter have said.

Cash Flow

Since taking charge in September, Chief Executive Officer Hubert Joly has been trying to reverse same-store sales declines in 9 of the past 10 quarters. Free online shipping and Web price matching during the holiday shopping season hurt profitability while full-year cash flow may trail Best Buy's projections, Michael Pachter, a Wedbush Securities analys said.

Los Angeles-based Pachter rates Best Buy shares as underperform, the equivalent of a sell recommendation.

"No one is going to make a bid until they see cash flow," he said in a telephone interview.

Best Buy, which is scheduled to report fiscal fourth- quarter results on Feb. 28, declined to comment ahead of announcing its holiday sales, Amy von Walter, a company spokeswoman, said in a telephone interview. David Reno, a spokesman for Schulze, declined to comment.

Best Buy rose 2.6 percent to $11.89 at 9:51 a.m. in New York. The shares dropped four of the past five years, including a decline of 49 percent in 2012.

Pachter compared Schulze's odds to the University of Notre Dame beating the University of Alabama at fooball.

On Jan. 7, Alabama routed Notre Dame 42-14 in the national championship game.

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