Best Buy (BBY) shares are down more than 10% today on news that founder Richard Schulze has reached an agreement with the company's Board of Directors extending the deadline for a potential bid for the electronics retailer. The $2 drop in Best Buy's stock erases all of 16% gain on Thursday after an article on StarTribune.com suggested Schulze would be bidding for company by the end of the week.
The new deadline allows Schulze and his private equity partners to bid for the company as late as February 28th. Best Buy is scheduled to report earnings for the fourth-quarter that same day.
In the attached video my Yahoo! finance colleague Aaron Task and I discuss today's drop in Best Buy stock and the outlook for shares. At the risk of spoiling the plot, neither of us comes up with a scenario in which the saga ends well for shareholders.
Since August 6th when Schulze first started mulling a takeover, Best Buy shares have fallen by a third, earnings results have missed expectations, and no specific turnaround plan is on the table. To people other than Richard Schulze, Best Buy is an eroding asset with only one potential buyer.
Alas, Schulze needs to the help of several private equity firms to make a bid in the $5 to $6 billion range being discussed. Cerberus, Texas Pacific Group and other rumored partners of Schulze have no economic reason not to wait for the company to drop further before making a bid.
The numbers didn't make sense in the original $9 billion offer last August and they don't add up today. If you're the only buyer of a sinking asset, the only price that really makes sense is "lower" and that's exactly what Schulze will end up paying, if they offer anything at all.
As Task and I conclude, Best Buy shareholders have been reduced to hoping for a greater fool to make a bid. On Wall Street, just like everywhere else, "Hope" is a four letter word.
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