Best Buy (BBY) Buyout Hopes Fade as Deal May Be Too Hard to Pull Off
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Price: $86.42 +1.25%
Rating Summary:
7 Buy, 25 Hold, 5 Sell
Rating Trend:
Up
Today's Overall Ratings:
Up: 13 | Down: 14 | New: 11
Rating Summary:
7 Buy, 25 Hold, 5 Sell
Rating Trend:
Up
Today's Overall Ratings:
Up: 13 | Down: 14 | New: 11
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After trading as high a $21.60 amid a potential $24-$26 take private offer from founder Richard Schulze, shares of Best Buy Co. Inc. (NYSE: BBY) are losing a little steam as Wall Street questions the wherewithal of Mr. Schulze to pull off the unsolicited offer.
This morning, Schulze, who owns just over 20% of the stock, made public a letter to acquire the shares he doesn't own for $24-$26 per share. The deal would be financed through Mr. Schulze's equity investment of ≈ $1 billion, investments from unidentified private equity firms, and debt financing.
While Best Buy confirmed the offer and said they review it, the interaction between the Mr. Schulze and the Board is contentious. Analysts at Wedbush belive that any bid that may ultimately surface will likely be hostile.
In addition, the firm questions whether a deal can be completed at all. "We believe that Mr. Schulze will have to raise at least $3 billion in equity in order to complete a deal of this size, as we think lenders would be reluctant to advance more than 2x trailing EBITDA given recent declines," analyst Michael Pachter comments. "Private equity investors would have to believe that they have a reasonable chance of generating a return on their investment; in our view, $3 billion of equity invested would likely require a return of at least 100% in the foreseeable future, meaning that 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; we do not believe that is a plausible scenario, and think that private equity investment will be hard to come by."
For an analyst ratings summary and ratings history on Best Buy click here. For more ratings news on Best Buy click here.
Shares of Best Buy last clsoed at $19.65, up 11.4 percent.
This morning, Schulze, who owns just over 20% of the stock, made public a letter to acquire the shares he doesn't own for $24-$26 per share. The deal would be financed through Mr. Schulze's equity investment of ≈ $1 billion, investments from unidentified private equity firms, and debt financing.
While Best Buy confirmed the offer and said they review it, the interaction between the Mr. Schulze and the Board is contentious. Analysts at Wedbush belive that any bid that may ultimately surface will likely be hostile.
In addition, the firm questions whether a deal can be completed at all. "We believe that Mr. Schulze will have to raise at least $3 billion in equity in order to complete a deal of this size, as we think lenders would be reluctant to advance more than 2x trailing EBITDA given recent declines," analyst Michael Pachter comments. "Private equity investors would have to believe that they have a reasonable chance of generating a return on their investment; in our view, $3 billion of equity invested would likely require a return of at least 100% in the foreseeable future, meaning that 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; we do not believe that is a plausible scenario, and think that private equity investment will be hard to come by."
For an analyst ratings summary and ratings history on Best Buy click here. For more ratings news on Best Buy click here.
Shares of Best Buy last clsoed at $19.65, up 11.4 percent.
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