Are Private Equity Groups Showrooming Best Buy?

They aren't dead yet. Shares of Best Buy (BBY) have been on a tear in 2013, rising more than 40%. The big news this week is the company's vow to kill showrooming once and for all with a new price-matching guarantee set to be implemented by March 3.

Of course the real question for Best Buy is whether or not founder Richard Schulze meets the February 28th deadline for making a firm buyout offer. Rumors abounded that Schulze is having trouble coming up with private equity funding to purchase a struggling company without a tangible turnaround plan in place.

Yahoo Finance! colleague Henry Blodget questions Best Buy's obsession with showrooming. "It's probably a relatively small percentage of customers," he says in the attached video. Now customers will get the best price "then they're going to sell you the warranty... and whatever else they layer on top of it." That's where the profits are anyway.

So why didn't Best Buy do this a long time ago?

Whatever the size of the problem, putting an end to showrooming is not the same thing as a turnaround plan. Management (or ex-management) buyouts make money for the buyers in a one of two ways. Either the company gets layered with debt and is run for cash flows which the asset erodes, which would be the case with Dell (DELL), or a company is taken out of public scrutiny turned around then taken public once more.

Private equity groups get paid either way but making a killing on a second IPO is where the real money is. A Dell deal would arguably pay for itself without expensive and high-risk revamping of the business model. Best Buy needs to be revamped from head to toe. Even after the company is gutted for cash and the PE guys get their initial payout there's going to be the sticky issue of Best Buy operating in a dying industry.

If the Private Equity guys are to act like Best Buy customers and showroom the potential buyout they'd look at the Dell deal and see a better price. While online they could also consider the history of Toys R Us which was purchased by KKR and others for $6.3 billion in 2005 and is still struggling to stay alive to this day.

Once they've looked around at Best Buy and done some comparison shopping, it's likely Schulze's backers will close a deal elsewhere.