On August 6th, Richard Schulze, the founder of Best Buy (BBY), offered to buy the company he started for $10 billion, sending shares up 13.3 percent. The market cap of BBY is now $6.8 billion, and the odds of him actually buying the company for that price are slim to none.
The only real positive of Richard Schulze buying Best Buy for $10 billion is that the shareholders will be bought out at a huge premium that positive earnings results won't give them any time soon. The big negative is that Schulze will regain control of a company that he has mishandled and lost touch of. G. Mike Mikan, the 41 year old interim CEO of Best Buy, hasn't done much taking the role in April, but he is expected to roll out plans for a turnaround in the coming weeks and probably does not want the company founder ruining his plans.
It's highly likely that Schulze's views of what Best Buy's direction should be are conflicting with the current leadership's views. In addition, Schulze would need to put a lot of powerful investors on an investment team if he is to raise the $10 billion that he wants to buy the company for. Most of Schulze's wealth rests in his 20 percent ownership of Best Buy, which means that he would need to raise another $8 billion to buy the rest of the stock. With all of the scandal that has gone on at the company coupled with the overall bearish tendencies of brick and mortar consumer electronics retailers, it appears to be highly unlikely he could keep a group of investors together until the deal closes.
Over the next two months, I expect Best Buy shares to drop back to the $17 range as a Schulze purchase becomes less and less likely to happen. The company's market cap increased by $905 million on the news. With the value of the company still $3.2 billion less than the $10 billion bid, the market gives this acquisition a 22 percent chance of happening. In addition, Schulze had a strong motive to announce intentions of buying the company as the news increased his net worth by about $181 million. Ploys like these are very common in activist investing and as anyone who follows activist investors knows, there is very rarely a bite after the bark.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.