Qualcomm Names Steve Mollenkopf CEO and President
Best Buy Says Schulze Declined Board Offer on Diligence
Hubert Joly, CEO of hotel operator Carlson Cos., will take over in September, replacing interim CEO Mike Mikan, Best Buy said yesterday in a statement. Schulze, who had been chairman, left Richfield, Minnesota-based Best Buy in June and is trying to purchase the company for as much as $9.5 billion with the help of private-equity partners.
The appointment of Joly signals that Best Buy plans to keep operating as a public company. Schulze declined an offer from the board to gain access to confidential financial information, which would have required him to wait until January to take his bid directly to shareholders, Best Buy said yesterday. Schulze said he was still working on an acceptable agreement with Best Buy and was “shocked” by the company’s statement.
“The Joly hire shows the board’s commitment to turning the company around and gives it legal justification if it needs to enact stronger takeover defenses,” Erik Gordon, a University of Michigan business professor, said yesterday in an e-mail. “Schulze missed a window of opportunity. If he had put a preemptively high, fully funded offer on the table, he would have gained the support of the board.”
The board has “insufficient information to make a reasonable conclusion” on Schulze’s bid, partly because of his failure to disclose financing and equity partners, Best Buy said in its statement. The retailer reports fiscal second-quarter results today.
Schulze said yesterday in a statement that he will continue pushing his proposal and was disappointed by Best Buy’s “abrupt public termination” of talks.
While Joly is “an accomplished executive,” Schulze said the company “continues to face enormous challenges and needs a clear path and a proven leadership team with deep retail experience and knowledge of Best Buy.”
In a letter last week, Schulze requested the board allow him to form a group to support his proposal to acquire Best Buy for $24 to $26 a share. Schulze, who held more than 20 percent of Best Buy as of June, plans to contribute at least $1 billion in equity from that stake.
Joly, 53, said Best Buy’s more than 1,000 U.S. consumer- electronics stores and increasing online sales are assets that will help rekindle growth.
“This company is a great American icon,” Joly said yesterday in an interview. “It is a $50 billion company with enormous assets and a great brand name that can innovate and grow in this market.”
Best Buy yesterday highlighted Joly’s experience and “track record of successful turnarounds” in media, technology and services sectors.
Since 2008, Joly has been CEO of closely held Carlson, a Minneapolis-based operator of hotels including Radisson and Country Inns & Suites. Under his tenure, the company implemented initiatives to boost revenue from the Web and invested in loyalty programs.
From 1999 to 2001, he oversaw the restructuring of Vivendi SA’s (VIV) video-game business, which is now part of Activision Blizzard Inc. (ATVI), Best Buy said. His experience in the technology industry also includes a stint at Electronic Data Systems Corp. in France. He worked at consulting firm McKinsey & Co. from 1983 to 1996.
“I don’t know that this guy has the chops to pull this off,” Michael Pachter, an analyst for Wedbush Securities in Los Angeles, said yesterday by telephone. He rates Best Buy as neutral and said investors have “no clue who Joly is. I’d rather they have hired a guy who runs a good retailer, not a hospitality company.”
Joly’s hiring “does come a little bit out of left field” since Mikan was widely viewed as the leading candidate, according to Anthony Chukumba, an analyst at BB&T Capital Markets in New York. He rates Best Buy as hold.
The new CEO’s lack of retail experience “actually may be a blessing in disguise,” Chukumba told Bloomberg Television. “They need someone to take a look at this business who is not wedded to the old brick-and-mortar retail way of doing things. He checks a lot of the boxes that Best Buy needs: restructuring experience, online experience, customer-service-oriented experience.”
Best Buy disclosed the departure of CEO Brian Dunn in April amid a board investigation into his “personal conduct.” Interim CEO Mikan, who took over after Dunn’s resignation, remains a director and becomes chairman of the audit committee, Best Buy said.
Best Buy’s board initially demanded that Schulze agree to a standstill of 18 months during which he wouldn’t directly contact shareholders or call a special shareholder meeting, according to a person familiar with the discussions. After Schulze rejected that demand, the two parties continued negotiations over the weekend, said the person, who declined to be identified because the talks were private.
“We were in the process of negotiating an acceptable standstill period when, without notice to me or to any of my advisors, the board issued its announcement,” Schulze said in a separate statement.
An 18-month standstill agreement proposed by the board was unacceptable because the retailer needs “urgent change,” according to the statement. Schulze said he was disappointed by Best Buy’s termination of discussions and remains hopeful the board will engage in talks to protect shareholder interests. Bruce Hight, a spokesman for Best Buy, said the company won’t comment beyond its statement.
“The board proposals were offered in good faith, consistent with the board’s fiduciary duties to all shareholders and its commitment to good governance practices,” Best Buy said.
Schulze initially sought permission to conduct due diligence on Aug. 6 when he proposed acquiring Best Buy. He’s recruiting executives including former CEO Brad Anderson to revive sales as Amazon.com Inc., Wal-Mart Stores Inc. (WMT) and other rivals have lured customers.
Best Buy said the board’s proposal would have allowed a waiver of Minnesota law in order to give Schulze the ability to work with private-equity partners and a chance to bring a fully financed proposal within 60 days, according to yesterday’s statement.
If quarterly sales are below estimates and margins deteriorate, it could cause added pressure on the stock price, according to John Tomlinson, an analyst at ITG Investment Research in New York.
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