Seeking Alpha

Seeking Beta To Your Alpha

 
View as an RSS Feed
View Seeking Beta To Your Alpha's Comments BY TICKER:
Latest  |  Highest rated
  • Best Buy's Last Quarter--Cash Drainage [View article]
    @slickvguy

    I'm so sure that they will go through the motions that I will probably buy some short term OTM calls for insurance. It's something I've been doing since June 10 (see hyperlink and date of my "stock talk" below).

    http://bit.ly/SoVoj9

    Ultimately, they will go through the motions. The Board will string Schulze along (they need something to support the stock price from going sub $15). He needs the Board's approval before any PE firm will touch this soap opera.

    Here's the rub though, the Board will do everything they can to make it appear like they're willing to consider an offer, but in the end the Board will reject any offer below $30 /share. If they accept anything less than reasonable valuation (the $30 /share price was plastered all over the news by every major analyst who follows the stock) they subject themselves to potential shareholder suits (there are plenty of people who still think BBY is worth $60 a share). Additional self motivation for each Board member comes in the form of the fact that they know they will lose their cushy Director positions if the company goes private and they'll never find cushy Director positions at any other company ever again if they sell the company for the price that Schulze wants to buy it at (what company would ever hire a board member that agreed to give the cow and the milk away for free?).

    Schulze will be hard pressed to come up with a deal valued more than what he already put on the table. It'll be tough going to $30 because of the sheer size of the deal even at current valuations. Also, PE firms need to make money as well, and selling them on the deal at $30 won't happen after everyone's seen the company's current financial position. Schulze will be strung along, and strung along, and strung along, until his net worth continues to drop.

    I suspect that Credit Suisse has been hedging for Schulze (e.g. maybe using the shares Schulze hasn't formally proposed to put into the deal as insurance against shorts sales that have probably been timed to maximize protection for Credit Suisse and Schulze?). I'm certain the man wants to take his company back, but I'm also pretty sure he's savvy enough not to stake his entire net worth on a deal that's not likely going to happen.

    Long story short - this is Circuit City (circa 2006-2007). The drama of the constant buyouts will be welcomed by the Board because they prop up the stock price, but the distractions will keep the company from the making the changes they need to make. The time, cash, and energy, all the parties devote to these buyout rumors will add yet another drain on the company.

    Eventually Schulze will realize that he needs to sell his shares. When that happens, the stock price will plummet.

    The only way this will be prevented from happening is if enough shareholders have bought into the company sub $24. If that's happened, then there could be a possibility that Schulze achieves what he needs to do to take the company private by replacing the board.

    Until Schulze is able to accumulate enough shares to replace BBY Directors I'd keep a negative view of the company. If he does accumulate enough shares though, I will be going immediately from short to long.

    I suspect that Schulze easily has enough leverage to call a meeting right now, but has not because he isn't confident that he'll be able to get the necessary number of votes to replace board members. Schulze's smart enough to know that it would be idiotic to call a meeting if he can't deliver the goods.

    In response to your question about September puts, I sold mine this morning and will probably re-invest the proceeds into longer term puts when news comes out about the Board and Schulze agreeing to due diligence terms. I'm pretty certain they'll agree since both sides have so much at stake...but each side also knows that they're only doing it to support the stock price.

    Also, thanks for your note. I used to be a seeking alpha contributor myself but have since switched to writing for the Motley Fool.
    Aug 22 10:24 PM | 1 Like Like |Link to Comment
  • Best Buy's Last Quarter--Cash Drainage [View article]
    Problem here a buyout is that the takeover deal was most likely based on numbers from the last quarter. This quarter's earnings call is a wake up to any private equity firm or bank looking to get involved. I'm wondering whether Credit Suisse still thinks they can get financing to put the deal together.

    http://bit.ly/OXf7Hy

    A chop shop deal is only viable if the pieces of the company can be sold off for greater than the underlying acquisition price. Based on the info from the earnings call, how much do you think a PE chop shop can get for the European or Chinese aspects of the business? How much are the big box retail leases worth now? How much is that big box inventory going to net in a firesale?

    Any new deal will have to factor in the discount rate those businesses are now worth (or not worth, as the numbers seem to show).

    Here's the thing though, even though the $24 a share deal is pipe dream now, Shulze and the BBY board won't come out and say it...right now its the only thing that's keeping the stock price from going sub $15.

    Eventually though, it'll be clear that if a deal does happen, the price will be significantly lower than the original valuations. The question though is whether speculators and investors will be able to exit before the writing is on the wall...
    Aug 21 09:53 PM | 1 Like Like |Link to Comment
  • Best Buy's Last Quarter--Cash Drainage [View article]
    @Lanettedonovan,

    IV's comment below isn't accurate. Two ratings agencies (S&P along with Fitch) both downgraded BBY.

    http://on.wsj.com/OXf7Hu

    The downgrades are more important than IV's response makes them out to be because if Moody's downgrades BBY, then BBY bondholders are entitled to a 1.5 billion payback + interest (assuming an outside interest acquires 50 percent + of the stock).

    http://bit.ly/OOY44J

    The drop in revenue, free cash flow, and increase in debt are significant because the Q2 earnings were the first time Private Equity got any real information on BBY's current financial state. While the BBY board and Schulze want you to think that private equity are all chomping at the bit to buyout the company, the cash position has changed significantly.

    http://bit.ly/OXf7Hy

    No-one will come out and say it, but the risk profile for the company has changed, and the numbers clearly show the sector is in decline. The only hope PE has in making any money in acquiring BBY is by buying it and then selling off the parts of the company for greater than what they purchased the whole for. The problem here is that a large part of the company is the international business (which has to be factored into the purchase price at high valuations, but which would need to be sold off at pennies to the dollar - based on the Q2 earnings call); and the brick and mortar retail infrastructure (which BBY has pretty much admitted has no value since they are changing to a new format and which would have to be dumped at pennies to the dollar); along with its Services business. What's left over are inventory and fixtures...all of which would be, again, sold off at pennies on the dollar.

    While the services business (i.e. Geek Squad) might have some real value left, the founder of Geek Squad jumped ship months ago, and the company has done little to re-brand that business.

    Sadly, all of this was pretty obvious when peeling back the numbers on the company and for those who were watching the drama as it unfolded.

    http://bit.ly/MVEVy5

    http://bit.ly/Nd81Za

    If you still own the equity, it might be a good time to consider an exit strategy before BBY goes the way of Circuit City...

    http://bit.ly/PviS5x

    http://bit.ly/OOY2K3
    Aug 21 09:44 PM | 1 Like Like |Link to Comment
  • Richard Schulze takes a shot at Best Buy's (BBY) decision to hire turnaround specialist Hubert Joly as its CEO, saying the company needs a proven leadership team with deep retail experience and knowledge of Best Buy. Though it sounds a bit like sour grapes after the company for the most part spurred its ex-founder, Schulze was correct with the part of his statement where he added value is eroding. Best Buy 6.8% lower on the day. [View news story]
    Tomorrow will be the first chance for private equity to get a peek at the BBY's latest financials. If things are bad, shareholders might be screaming for a buyout, but might find that private equity isn't interested.

    http://bit.ly/NgjvLW
    Aug 20 09:21 PM | Likes Like |Link to Comment
  • Hubert Joly Will Strengthen Best Buy's Valuation [View article]
    Or it shows how the recent run up in the price was based solely on speculation about the buyout.

    More likely it was a combination of Schulze's rejection of the Board's offer to conduct due diligence and the naming of Joly.

    The whole thing is a soap opera right now, and Richard Schulze is a loose cannon. I suspect that many investors would prefer to sit on the sidelines than gamble with their money. The swings could go either way, and in a complete worst case scenario Schulze dumps his shares and sends the stock price plummeting.
    Aug 20 09:18 PM | 1 Like Like |Link to Comment
  • Best Buy's Stock Price Tumbles After Naming Its New CEO [View article]
    Revenues will likely be down. Expect lower FCF and and increase in debt.

    http://bit.ly/MVEVy5

    Shareholders might be screaming for a buyout, but if revenue is down and debt is up, private equity might not touch the deal with a ten foot pole.

    http://bit.ly/NgjvLW
    Aug 20 09:09 PM | Likes Like |Link to Comment
  • Best Buy's Board Of Directors Are Killing Shareholder Value [View article]
    Revenues will likely be down. Expect lower FCF and and increase in debt.

    http://bit.ly/MVEVy5

    Shareholders might be screaming for a buyout, but if revenue is down and debt is up, private equity might not touch the deal with a ten foot pole.

    http://bit.ly/NgjvLW

    In a worst case, perfect storm scenario, Schulze would be left with no options but to sell. Hopefully Credit Suisse has been hedging for him - otherwise he could face massive losses.
    Aug 20 09:08 PM | 1 Like Like |Link to Comment
  • Earnings Preview: Best Buy [View article]
    Revenues will likely be down. Expect lower FCF and and increase in debt.

    http://bit.ly/MVEVy5

    Shareholders might be screaming for a buyout, but if revenue is down and debt is up, private equity might not touch the deal with a ten foot pole.

    http://bit.ly/NgjvLW
    Aug 20 09:03 PM | Likes Like |Link to Comment
  • Best Buy's 2012 Layoffs Reminiscent Of Circuit City's 2007 Layoffs [View article]
    @ Bye Bye Best Buy,

    You'll probably want to find another forum for your updates. Seeking Alpha updates contributors with the number of views each article receives. Unfortunately this article only generates about 3 views a day now.

    I appreciate your visits to the page, but unfortunately, it seems as if you and I are the only ones who still visit this page for the comments.
    Jul 31 11:28 PM | Likes Like |Link to Comment
  • Will RadioShack End Up Like Circuit City? [View article]
    Maybe they could develop web sites to sell mobile phones at an even lower prices?

    Wait - that's already been done...

    http://www.wirefly.com

    I agree with pftettes, and if these retailers don't do anything but try to differentiate on price, they will die. A high cost prime retail space operation is very difficult to subsidize when lower cost models that can sell products and plans at lower prices already exist...
    Jul 28 01:57 AM | Likes Like |Link to Comment
  • RadioShack Plunges: Investors Should Stay Away [View article]
    Earnings loss for RSH was predictable based on the census data for Q2.

    http://seekingalpha.co...
    Jul 25 09:47 PM | Likes Like |Link to Comment
  • Electronics And Appliance Stores Sales Slip In Q2: May Cause Concern For Best Buy/Radio Shack [View article]
    The thunder and lighting on RSH was pretty bad.

    I'm expecting even worse results from BBY. Expect massive stock buybacks (guessing in the $19-$20 range when the company was running scared of a Schulze buyout rumor), significant "one time" restructuring costs for the newer/smaller "Radioshack/Circuit City Express" styled stores, and the overall FCF position of the company to have diminished significantly.
    Jul 25 09:11 PM | Likes Like |Link to Comment
  • Will RadioShack End Up Like Circuit City? [View article]
    Radioshack will go the way of Circuit City. BBY is pushing into RSH's business space. Census data on Q2 made today's 30% drop and the dismal quarter predictable.

    HGG was the canary in the coalmine. APPL's earning miss confirms it. RSH is another victim of the drop in consumer electronics retailers sales last quarter.

    http://seekingalpha.co...
    Jul 25 09:05 PM | Likes Like |Link to Comment
  • Electronics And Appliance Stores Sales Slip In Q2: May Cause Concern For Best Buy/Radio Shack [View article]
    @ Deshy...

    Still think RSH has years? Circuit City went under about 18 months after it was forced to discontinue its dividend...
    Jul 25 09:00 PM | Likes Like |Link to Comment
  • Best Buy's 2012 Layoffs Reminiscent Of Circuit City's 2007 Layoffs [View article]
    @ Tadpoles_UK

    Glad to hear that you opened a short position in BBY. Last I remembered, you had no position and were considering going short via puts or selling calls.

    The Apple miss spells bad news for BBY's August Q2 earnings call. If you missed it, another one of my articles (link below) discussed how bad Q2 might be for BBY. Think HGG's 30% drop, but potentially worse. The Apple news only confirms that the Census data regarding consumer electronics was spot on.

    http://bit.ly/MVEVy5

    I'm not sure whether current upper management won't bankrupt the company faster with their payouts to each other. The recent law firm investigation into the company's decision to award $10 million to execs simply to "do nothing but stick around" seems to indicate that the insiders are looking to milk the company for all its worth before they drive the company into bankruptcy.

    If the employees do unionize I don't think anyone would blame them since it seems the only option available to them to protect themselves. From an investment prospective for the company stock price, unionizing would add yet another poison pill for a private equity firm to have to deal with (as if the current attempts by existing management and the board to flush as much cash down the toilet were not enough).

    It seems like upper management is looking to "grab as much as they can before the building burns down." I wouldn't be surprised if the employees didn't unionize to protect their own interests before its too late.

    Frankly I'm shocked that Shulze hasn't sold like Einhorn. Then again, if the employees unionize, then I'm not what options will be left on the table for Schulze since I couldn't imagine any private equity firm or bank would want to touch the company at that point. If that happens, expect your short position to become very very profitable...
    Jul 24 11:47 PM | 3 Likes Like |Link to Comment
COMMENTS STATS
450 Comments
181 Likes