Best Buy Founder Wants His Company Back

Discussion
Aug 07, 2012

Do you get the impression that Richard Schulze’s offer to buy back Best Buy is more than just business? That it’s personal?

Mr. Schulze, the founder and former chairman of Best Buy, left the company on bad terms after it was learned that he failed to take action after discovering an inappropriate relationship between the chain’s former CEO and a female employee of the company. On his way out, Mr. Schulze vowed he’d be back. He sent a letter to the Best Buy board yesterday signaled that he’s not kidding around. Mr. Schulze made a proposal to acquire the 80 percent of the company that he does not already own. He made an offer of between $24 and $26 a share. Best Buy’s share price jumped to $21.15 on news of the offer.

While not specific about how he intends to raise the funds for the acquisition, it is commonly believed that Mr. Schulze will bring on a number of private equity firms to complete the deal. Credit Suisse Group AG, Mr. Schulze’s financial adviser, said it was confident about obtaining financing.

"I have been actively exploring all available options for my ownership stake," Mr. Schulze said in the letter. "That exploration has reinforced my belief that bold and extensive changes are needed for Best Buy to return to market leadership and has led me to the conclusion that the company’s best chance for renewed success will be to implement these changes under a different ownership structure."

Mr. Schulze also indicated that he has held conversations with former Best Buy CEO Brad Anderson and COO Allen Lenzmeier about rejoining the company should he succeed in his offer.

According to Reuters, if Mr. Schulze acquires Best Buy, it would be "the world’s biggest leveraged buyout of the year."

While many analysts remain skeptical that the deal will happen, many also believe that Best Buy needs new leadership. Whether bringing back former leaders from the chain’s heyday will satisfy the need is the basis for debate.

Discussion Questions: Would Best Buy benefit from going private, whether that is with Richard Schulze or someone else at the helm? Would bringing back executives from the past to run the company give Best Buy a better chance to succeed than finding someone new?

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21 Comments on "Best Buy Founder Wants His Company Back"

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Ben Ball
BrainTrust

Yes. What Best Buy needs right now is breathing space, out of the watchful eye of Wall Street.

Whether the “old guard” has the right formula for a cure is anybody’s guess — but whoever gets the task needs room to run.

Dick Seesel
BrainTrust

Whether Best Buy stays public or goes private is not the real issue. The biggest question is whether the founding CEO (who served on the board for many years after his retirement) and his handpicked successor as leader of the company can be the “agents of change” that BBY requires.

Yes, the company has developed a new “Connected” prototype in the shadow of its home office, and has successfully developed the “Mobile” concept. But a recent visit to a full-sized store showed the same issues that have dogged the company for years: A center core overspaced with CDs, DVDs and computer software…lackluster presentations of computers and TVs…a dark, unappealing shopping environment. Schulze and his proteges have been very slow to react to the innovation of the Apple Store; how do they intend to fix Best Buy now?

Gene Hoffman
Guest
Gene Hoffman
4 years 10 months ago

Richard Schulze was a great salesman. A salesman has got to continue to dream. It comes with the territory. Today Schulze is dreaming of winning the future of Best Buy with the Past. But the past is gone, the future has changed, the learning curve has steepened and a great salesman’s ego is no longer sufficient. Best Buy needs dynamic reinvention by contemporary minds, not re-entries.

Steve Montgomery
BrainTrust

Going private will allow Best Buy to take action without being subject to the pressures of being public. Being privately held means ownership can plan for the long run. This can be done without the negative press that comes from any declines in the stock price based on the public’s perception of what impact the actions will have. This will give the company time to take the actions it needs to take. The question then becomes, is Mr. Schulze the person to lead a team? Time will tell.

Liz Crawford
BrainTrust

Yes, Best Buy would definitely benefit from going private. The pressure from Wall Street for quarterly profitability is too hard to fend off while trying to re-group amid changing market conditions.

Going private is half the equation. The other half is leadership. Is Schulze the right man for the job? Shopper dynamics are changing fast – it’s no guarantee that Schultz is up to speed, or that he is not. Very few have a track record which could assure success in BBY’s situation. It can’t be worse — let him try.

Adrian Weidmann
BrainTrust

Taking the company private would certainly allow Best Buy the time and pace to assess and address their challenges without the pressure and manipulation by Wall Street. Public companies certainly have the advantage of funding, but it often comes at a tremendous price. Investors want short term profits and executives manage for the short-term. Best Buy is a great example. Retailers definitely need to make innovative and decisive moves to remain relevant. Lowe’s has been doing a great job in informing analysts as to why they are making changes and outlining exactly how they are addressing the changing landscape. Good luck to Mr. Schulze! I hope he gets a chance to redirect a private Best Buy.

Gene Detroyer
BrainTrust

Going private gives BBY the flexibility it needs to make changes that will surely create significant losses over the next few years. That is unacceptable to Wall Street, but critical to implementing the right strategy. The focus must change from the next quarter to the next 5 years. That can’t be done with a public company.

But, the ultimate issue is what will be done. BBY faces the same challenges as every retailer. Retail is changing at an alarming pace. The internet is making the traditional store obsolete. BBY must move forward by leaps not steps. And, most of all it must not look for a solution in the past.

Ken Lonyai
BrainTrust

Best Buy is in a very tough market, even if the company had been exemplary and doing everything right. Given that it has been plagued by missteps, it will be tough to be competitive going into the future. Private or public is irrelevant where it counts: creating value and amazing experiences for customers. I don’t believe they will ever do that.

The glory days are gone, no matter how fond the memories. Unless Schulze can really ride in on a high-kicking white horse with Tonto by his side, bringing him back to save the day is a true fantasy. As chairman, he went with the flow and was blind to the slow erosion of the model he created as the market slowly but deliberately moved on. In almost all instances regarding executive leadership, out with the old is where things must end.

Anne Howe
BrainTrust

I would love to see what could happen to Best Buy when it gets out from under the microscope of Wall Street. The real questions to me are these:
1) How nimble can the company be?
2) Can it execute shopper-facing anything without a ten month lead time?
3) Can it actually connect the dots between marketing and merchandising with the shopper at the center?
4) Can it hire partners in marketing services that know how to create better shopper experiences and help it execute versus designing new ads?
5) Will it put a leader in place that can run the operation while keeping the shopper in the center of the universe?

I’d like to see them give it a go!

Tony Orlando
BrainTrust

If Richard Schulze wants to risk everything to ignite BBY into the future, than bully for him. I’m not sure anyone with a lot of brick and mortar store fronts can compete with the internet in the electronics industry.

I wish him well, but it is a long uphill battle for survival.

Ben Sprecher
Guest
Ben Sprecher
4 years 10 months ago

As others here have said, Best Buy needs to undergo significant changes to be successful in the long run, and the burden of being public might limit their flexibility in that regard.

But whether public or private, Best Buy needs to radically pivot its business and rethink what it means to be a bricks-and-mortar electronics store in the age of Amazon.

One interesting example of them turning a weakness (namely, the cost of having many physical stores spread over the country) into a strength is their recent move to back eBay Now’s same-day delivery service.

Will eBay Now (and other services like it) be Best Buy’s salvation? Probably not. But they will need to get creative in the coming years if they want to stay relevant.

Camille P. Schuster, PhD.
BrainTrust

“Bold and extensive changes” are necessary for many retailers in today’s marketplace. Going private would give Best Buy or any other company relief from meeting quarterly results during the turnaround process. Unless the top execs can persuade Wall Street and investors to stick with them through rocky times, going private is one way to achieve relief. Unless execs have had intervening successful decision-making experiences, there is no reason to expect that their view of the company and business environment would be any better now than when they were in charge.

And maybe after watching the ramifications at Penn State, executives will change their policy of covering up inappropriate behavior by their employees.

Bill Emerson
Guest
Bill Emerson
4 years 10 months ago

Going private is always attractive to large companies that are getting beat up by the street and struggling with a restive BOD. It does nothing, however, to address fundamental challenges to the business model (too much non-productive selling space, among other things) and can limit access to capital needed to face these challenges. Are the founder and his team the right people to address the challenges? They built a terrific company, after all, and no one understands the DNA of BB better. Bringing in an outsider has its own challenges (e.g. How’s Johnson doing at JCP?). Time will tell.

Ed Dennis
Guest
Ed Dennis
4 years 10 months ago
It can’t hurt Best Buy to go private and would allow investors to get out with something. I’m not sure Schulze has a real plan for Best Buy, but him owning it again isn’t any solution. Best Buy finds itself in a position of being a retailer who adds little or no value. They aren’t the low cost supplier, they aren’t the high customer service provider, they don’t have any special products, so what is their function beyond being a showroom for on line retailers? I can’t find any real reason. If I was Schulze, I would start a new concept selling killer PL products at lower than national brand prices. Better products, better prices, more features, better warranty and service. Become the home theater center of the world. Show people how to cut the cable and/or satellite out and use the internet to get entertainment. There is a huge opportunity here, but it will take someone with Schultz’s money and contacts to put it together. If he could get there before Apple he might have something. If not we will have to wait for Apple to lead us to the promised land.
Ryan Mathews
BrainTrust

Oversized ego + personal outrage + private equity funding = disaster!

PE firms aren’t going to want to keep it private for very long especially since the company’s long-term future is hardly assured.

Buying companies is like hitting the “Send” button on those angry emails. You shouldn’t do it while you are still mad.

Best Buy has enough strategic problems in terms of finding a place in retail’s future. It doesn’t need emotional chaos on top of everything else.

Tina Lahti
Guest
Tina Lahti
4 years 10 months ago

As a Minnesotan, I wish the best for Best Buy; but they need to address the simple fact that they provide an unpleasant shopping experience.

gordon arnold
Guest

The search for ownership appears to be headed in an irrelevant direction. Management needs to find product and service the consumer wants to buy at a price they will go to the store electronically or physically and pay for, now. The solution to their problems is just that simple. The pricing of technical materials with and without support is not being addressed properly here.

Software companies have remained viable by providing their products, documentation, service and support separately. Updates for stability and security are added to licensed only copies. Enhancements are added to and sold as new product. Best Buy would do well to design and develop a similar marketing plan now while it can, instead of playing musical chairs in the board room.

Kai Clarke
BrainTrust

Yes, BB would benefit from going private. Most importantly it would benefit from a change in leadership. It needs a new model, including new expectations. This requires the company to develop an entirely new perspective and to build a focus on retailing that pushes excellence in customer service along with excellence in retailing, merchandising and their overall business.

BB is poorly run, poorly merchandised, expensive and difficult to work with. There are numerous OOSs in every store, the customer service is poor and the corporate focus doesn’t seem to be customer driven. All of this needs to be changed (for a start) and BB has to evolve into a Brick and Mortar, Click and Mortar retailer that is cool, fun, and customer focused. They can take their cues from Apple, Trader Joe’s, Whole Foods, and others.

Craig Sundstrom
Guest

It’s moments like this that make it easy to hate capitalism: Mr. Schulze wants “his” company back, as if it were a toy, rather than an independent entity with hundreds of thousands of stakeholders…OK, end of rant. The question, it seems, is whether he is a genius or simply an egotist, but all those who think being out from under Wall Steet’s microscope is liberating are underestimating the enslaving power of $BB’s in debt (even at today’s free-money rates).

Dennis Smith
Guest
Dennis Smith
4 years 10 months ago

Public or private, BBY needs a new business model without which it will continue to decline. Unfortunately, as we saw at Circuit City, everyone on board sees a continuation of the present course and is determined to hang on to present practices including collecting a paycheck as long as possible. Change means disruption, including loss of many positions. The present crew wants no part of it. Towards the end of Circuit City we saw retention bonuses not dependent on performance. We are now at that stage with BBY.

So what will happen when Amazon opens local service centers for its “prime + local” members who can check out/get demos of prospective on line purchases, return items locally, trade in older items, get purchased items serviced locally and get face to face local user support? Can Schulze be ready for this? Probably not.

A drastic new idea is needed, like the “Service Club Store” concept described at reinventbestbuy.com. Amazon seems to be heading that way and will probably get there first.

Karin Jeske
Guest
Karin Jeske
4 years 10 months ago

I sense that Mr. Schulze has PASSION and IDEAS to set Best Buy on a different course. It could be a Steve Jobs moment, and that would be wonderful to see.

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