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Best Buy and founder Richard Schulze have ended talks whereby he and private equity investors were seeking three board seats in exchange for acquiring a minority stake in the consumer electronics giant, Bloomberg reported. Schulze wasn’t able to line up debt and equity financing, according to sources cited by the news service. Schulze’s attempt to arrange a smaller deal with Cerberus Capital Management, TPG Capital and Leonard Green & Partners also ended. Hopes a deal might be achieved had risen earlier this year after Best Buy posted better-than-expected holiday sales. With a stake of about 20% Schulze is the company’s biggest shareholder and had sought since last year to take over the company he founded more than 40 years ago. He resigned as chairman in June and new CEO Hubert Joly has since stabilized sales, closing some stores and improving e-commerce operations. Schulze might still come up with a last-ditch proposal but it seems unlikely. Best Buy reports Q4 earnings Friday.

The retailer’s stock is up 5% pre-market after it disclosed that sales in the nine weeks ending January 5 fell just 0.4% vs the same period last year to $12.8B. Revenues at stores open at least a year were down 1.4% beating forecasts for a 2% drop, and all of the decline came from overseas. Domestic store sales were flat with growth in mobile phones, tablets and eReaders, and appliances offsetting declines in entertainment, TV sets and computers. Meanwhile, revenues at Best Buy’s online operation were up 10% to $1.1B. “Our holiday selling strategy, backed by a compelling assortment, increased employee training and price match policy, allowed us to deliver these results,” CEO Hubert Joly says. Based on what the company calls its “solid performance” over the holidays, Best Buy reiterated its cash flow forecast for its fiscal year. But just as important for investors, the results should relieve fears that a lousy holiday sales period might derail company founder Richard Schulze’s effort to buy the struggling electronics and home entertainment chain.

Richard Schulze wants to see Best Buy‘s holiday-season sales performance before he and his backers decide how to handle their potential bid for the consumer electronics chain. He and the company said today that they’ve extended the agreement from August that enables Schulze to see confidential company information: He now can make a proposal sometime in February, and the board would have 30 days to respond. The news sent Best Buy shares tumbling more than 15% this morning, reversing yesterday’s gains after the Minneapolis Star Tribune reported that Schulze was preparing to offer as much as $6B for the company ”by the end of the week, possibly on Friday.” Under the amended agreement with Schulze, Best Buy says it will extend the deadline — to March 15 from February 22 — to notify investors of shareholder proposals ahead of the 2013 annual meeting. Best Buy plans to announce its holiday-season sales January 11, and report Q4 earnings on February 28.

The stock is up about 15% this morning after the Minneapolis-based company’s home town paper, the Star Tribune, reported that founder Richard Schulze will make “a fully financed offer” of as much as $6B for Best Buy ”by the end of the week, possibly on Friday.” The potential offer contrasts with the $8.8B proposal Schulze made in August. But Best Buy shares have declined more than 20% since then as it reported softer than expected earnings — which CEO Hubert Joly said were “clearly unsatisfactory” – and lowered its financial forecasts. Bankers and private equity said to be backing Schulze include Cerberus, Leonard Greene & Partner and the Texas Pacific Group,. He’s also working with the consumer electronics chain’s former CEO Brad Anderson and former president Al Lenzmeier. Schulze, who launched the company in 1966, resigned from the board in June. That upended a face-saving deal he made with the board after its Audit Committee said in a report that Schulze helped to cover up former CEO Brian Dunn’s “inappropriate relationship” with a female employee. Corporate law in Minneapolis makes it virtually impossible to mount a hostile takeover. But Schulze’s relationship with the company is said to have warmed as its business performance cooled, in large part due to its inability to keep up with rivals including Amazon and Walmart. In August Best Buy gave him permission to proceed with an effort to … Read More »