August 15, 2012
Can Richard Schulze make a good buy out of Best Buy? The billionaire founder and former chairman of the electronics retailer (BBY) last week offered as much as $26 a share, or more than $8.8 billion, to buy the shares he does not already own in the company.
The Minnesota-based Best Buy has been looking for new leadership and a strategy that will help it compete better against Apple’s stores and online retailers such as Amazon.com. CEO Brian Dunn resigned in early April, after the Best Buy board started an independent investigation into his personal conduct. The company announced in May that the investigation found that Dunn had violated company policies by “engaging in an extremely close personal relationship with a female employee that negatively impacted the work environment.” The investigation concluded that Dunn had not misused company resources, but it found that Schulze had known of Dunn’s conduct and failed to report it to the board. Schulze, 71, left the board in June, but he still holds about 69 million shares, or just over 20 percent of the company.
In May, Best Buy’s board of directors hired recruiting firm Spencer Stuart to search for a new CEO. The company said it would consider internal and external candidates. But Schulze, who founded the company in 1966, believes he’s the guy to bring the company back from the brink.
“There is no question that now is the moment of truth for Best Buy and that immediate and substantial changes are needed for the company to return to its market-leading ways,” he said in a statement announcing his takeover bid. “Under the leadership of proven executives with the knowledge, insight, experience and passion needed to get the company on the right path forward, I am confident we can bring back Best Buy – and that the name over the door will once again mean something special to our customers and employees.”
Investors have so far responded with the market equivalent of the McKayla Is Not Impressed face. Best Buy’s stock opened trading last Monday at $21.60, or 22 percent above where it ended the week before. But the shares slumped over the course of the week to finish at $19.21, well below the price range Schulze had offered. That’s a sign of skepticism that the takeover deal will happen.
“There’s a ton of rationale for it being able to make some big changes away from the public’s watchful eye,” UBS analyst Michael Lasser wrote in a note to clients the day the bid was announced. “But, in this case, we think the challenge of funding a deal will stand in its way.” The Best Buy board is likely to find the proposed price too low, Lasser wrote.
The structure of the deal could also be problematic. Loading Best Buy up with debt could make it more difficult for the company to pay for key moves, like terminating leases in order to shut down unprofitable locations, Lasser wrote. Credit-rating agencies Standard & Poor’s and Fitch both cut Best Buy’s debt to junk status after the Schulze bid was made public. The deal, S&P credit analyst Jayne Ross said, would add “a significant amount of debt” to Best Buy’s balance sheet. "Depending on the amount of debt to be used in a buyout and our view of a turnaround plan for the company's operations given the changing industry dynamics, we could lower the rating by multiple notches," the analyst said in a statement.
But if – and it’s a big “if,” Schulze’s buyout bid is successful, he would become just the latest in a long line of founders who swooped in to save the companies they created. Just this year, EHarmony’s founder, Dr. Neil Warren Clark, returned to the chief executive role at the matchmaking site. And Urban Outfitters co-founder Richard Hayne stepped in as CEO in January when Glen Senk resigned from the struggling clothing retailer. Still, those founders don’t always bring success back with them – and, in some cases, they may not have the right skills to lead a company past its early years. "We have low confidence that Dick Hayne will be the right leader to usher in the new 'big company' era Urban needs to embrace," Liz Dunn, an analyst at Macquarie Securities, wrote after the Urban Outfitters change.
The track record of such comebacks is decidedly mixed. Here, a look at five other high-profile executives who tried to rescue the businesses they built.
Steve Jobs, Apple
Jobs left Apple in 1985 after losing a showdown with Apple’s CEO at the time, John Sculley. In his now famous 2005 commencement address at Stanford University, Jobs said that being pushed out of the company he co-founded set him up for future success: “I didn't see it then, but it turned out that getting fired from Apple was the best thing that could have ever happened to me. The heaviness of being successful was replaced by the lightness of being a beginner again, less sure about everything. It freed me to enter one of the most creative periods of my life.” Jobs returned to Apple at age 41 in 1996 and, well, you know the rest – and if you don’t just pull out your iPhone and ask Siri. “I'm pretty sure none of this would have happened if I hadn't been fired from Apple,” Jobs said at Stanford. “It was awful tasting medicine, but I guess the patient needed it. Sometimes life hits you in the head with a brick. Don't lose faith.”
The verdict: As fruitful a comeback as there’s ever been.
Charles R. Schwab, Charles Schwab
The discount brokerage pioneer had shared the CEO job with his long-time right-hand man, David Pottruck, for five years, but took over as sole CEO when Pottruck was fired in 2004. Schwab admitted to shareholders that the company had "lost touch with our heritage." The founder would go on to slash thousands of jobs and cut trading commissions as part of a renewed emphasis on individual investors. Schwab stock rebounded before being hit again during the recession. Schwab, now 75, was replaced as CEO by Walter Bettinger in 2008 but remains chairman of the company that bears his name.
The verdict: Investors have been willing to “Talk to Chuck,” but Schwab stock has struggled to keep up with the market.
Michael Dell, Dell
Michael Dell started his computer business in 1984 as a teenager at the University of Texas at Austin in 1984. As the PC era booted up, Dell would go on to become the youngest CEO of a Fortune 500 company. He continued as CEO until 2004, when he relinquished that title to Kevin Rollins, who had been president and COO. Dell, meanwhile, stayed on as chairman. "We made decisions regarding strategy and operations together," Rollins told Fortune last year. "It worked amazingly well until we had real disagreement about the company's direction." The crux of the dispute: How and how much Dell should diversify beyond PCs. Rollins was fired in 2007, and Dell stepped back into the CEO job. The computer maker’s share price has dropped almost 50 percent since then, but Dell, now 47, remains one of the wealthiest men in the world, with an estimated fortune of more than $15 billion.
The verdict: Caught flatfooted by the rise of tablets, Dell’s return has been a dud.
Jerry Yang, Yahoo
Yang and David Filo cofounded the Internet portal in 1995 – three years before Google started its search engine-- and took over as CEO in 2007 after veteran media executive Terry Semel stepped down under pressure. By then, Google had left Yahoo with little to cheer about, and Yang’s tenure turned out to be short – about a year and a half – and rocky. Most notably, Yang failed to close a deal to sell his company to Microsoft. His successor, Carol Bartz, didn’t fare much better, and the company’s hopes now rest on new CEO Marissa Mayer, who defected from Google. The 43-year-old Yang, meanwhile, left the company’s board early this year.
The verdict: Yang rejected a rich offer from Microsoft, and failed to clarify Yahoo’s direction.
Howard Schultz, Starbucks
Schultz didn’t open the original Starbucks coffee-bean shop in 1971, but he’s the person most responsible for the chain’s super-caffeinated expansion onto seemingly every street corner, and into new areas. Schultz joined the business in 1982 and aggressively pursued the idea of expansion – too aggressively for the tastes of the original founders, who wanted to be coffee roasters, not restaurant owners. Schultz would end up leaving the company, starting his own coffee company and buying the Starbucks name and business. He left the CEO job in 2000 but came back in 2008 http://news.starbucks.com/article_display.cfm?article_id=77 , less than a year after writing a memo warning then-CEO Jim Donald of “the commoditization of the Starbucks experience.” Schultz, 59, went on to lead the company to record revenue and profits.
The verdict: Despite a recent pullback, Schultz has brewed up big share-price gains since returning as CEO.