Best Buy Surges On Buyout Offer, Although Doubts Remain

Best Buy

shares are rising 23% in premarket trading after founder Richard Schulze on Monday offered to take the electronics retailer private for $24 to $26 a share, at least a 36% price premium. The offer values the company at $8.5 billion – at minimum. "I have been actively exploring all available options for my ownership stake,” Schulze said in the letter to the board. “That exploration has reinforced my belief that bold and extensive changes are needed for Best Buy to return to market leadership." Best Buy shares have yet to move to the $24 to $26 offer range, however, reflecting some doubts about his ability to put together a buyout that would refinance as much as $1.7 billion in long-term debt. Once a double-digit earnings growth story year after year, Best Buy's fortunes have changed amid increasing retail competition. The company is focusing on increasing its Geek Squad services business and on cost cuts in an effort to battle brutal industry price competition from Amazon.com

and other online outlets. Strong retail growth at Apple

and low prices at WalMart

also have hurt sales and crimped margins. Best Buy posted a net loss of more than $1.2 billion for its fiscal year ended in March. It had not posted a yearly loss since 1991, six years after going public. Schulze is the largest Best Buy shareholder with a 20.1% stake. He plans to spend $1 billion from that stake in his buyout offer, according to a letter written to Best Buy's board. He plans to gather the rest from private equity firms; details remain fuzzy so far. Schulze needs permission from Best Buy board's permission to put together a more detailed offer, which may include the names of specific investors. He has asked the board for its OK. “I am confident that the necessary due diligence could be completed expeditiously and a binding agreement to acquire Best Buy could be reached quickly,” Schulze said in the letter. Few know the company as well as Schulze. He had been the company's CEO for 36 years, up until 2002. He has long since served as the board chairman and director. Schulze resigned from the company's board in June and said he was exploring options for his ownership stake, following a scandal. A probe by a Best Buy board committee found that Schulze had not been forthcoming about allegations of personal misconduct by then-CEO Brian Dunn.