Best Buy (NYSE:BBY) just recently announced it has hired Hubert Joly as the new CEO for the company. Joly was the former CEO of Carlson Companies, which is a travel and hospitality company. Joly has largely been praised as a turnaround expert. While Joly has done a great job as CEO, the fact of the matter is that most of his experience lies in the hospitality industry.
The structure of the hospitality industry is significantly different than that of the electronics retailers. While Joly could be a good fit eventually, Best Buy is under a time crunch to fix its failing business model. It will take time for Joly to get settled and enact his own changes for the company. The Board of Directors [BOD] needs to understand that they should consider all options at this point.
Founder Richard Schulze says he has the ability to take the company private. He has also mentioned that he has "significant commitment" from PE firms. Schulze mentioned again last week that he will keep applying pressure to the BOD. However, the BOD just recently mentioned that they basically have chosen to reject the offer. Talks with Schulze broke down for multiple reasons. However, one of the main reasons for the breakdown was because Schulze refused to a standstill period. The terms of the standstill period were that Schulze could not call a shareholder meeting or a vote for the next 18 months.
Schulze refused saying that the period was too long and change needs to happen soon.
We were in the process of negotiating an acceptable standstill period when, without notice to me or to any of my advisors, the board issued its announcement," Schulze said in a separate statement. An 18-month standstill agreement proposed by the board was unacceptable because the retailer needs urgent change.
- Richard Schulze
Schulze is right about the 18 months standstill and the fact that the BOD would want to push back a shareholder meeting so far back shows that the BOD is not committed to the shareholders. The BOD has no sense of urgency when they should. The big box retailers are under significant pressure. Schulze's offer of $24-$26 per share is reasonable for a retailer that has seen same store sales decline for eight straight quarters. The BOD really needs to look at a possible sale because if they keep waiting for more they may not be able to get as much in the future when earnings continue to deteriorate.