The stock price tells the basic story. If investors believed that Best Buy founder Richard Schulze was likely to succeed with the plan he unveiled yesterday then the company’s shares would be trading close to his proposed offer of as much as $26 a share. Instead they’ve settled in at about $19.90. One reason for the doubt: Best Buy is incorporated in Minnesota which sets an unusually high bar for hostile takeovers. Acquirers who don’t have board approval must own their stock in a target company for at least four years — and then win the support of owners of 80% of the voting shares. That’s too high a threshold even for Schulze, who controls 20.1% of Best Buy’s voting shares. And the conventional wisdom is that the board likely won’t support his offer. At the very least they’d want a higher bid, perhaps more than $30 a share, Jefferies Equity Research analyst Daniel Binder says in a report today. Directors presumably have faith in the turnaround plan they’ve been developing. “We should hear more about management’s turnaround plan later this month and the cornerstone of the strategy will probably be building the services business, while at the same time focusing on additional cost cutting,” Binder says. In addition, analysts question whether Schulze will be able to raise enough money. The former Best Buy chairman said yesterday that his adviser, Credit Suisse, assured him that he can borrow the cash he needs. But Wedbush Securities’ Michael Pachter notes that Schulze would probably need more than $8.7B to leave him with enough capital to run the company — and that’s more than he can manage. Private equity firms “would have to believe that Best Buy could be taken private for $8 billion and then sold for $11 billion or more in the next 3 – 4 years,” Pachter says. That strikes him as unlikely which means “private equity investment will be hard to come by.”
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