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Best Buy Names Turnaround Expert CEO as Buyout Talks End

Monday, 20 August 2012 07:32 AM

U.S. electronics chain Best Buy Co. Inc. named Hubert Joly, the former head of hospitality and travel company Carlson, as its new chief executive on Monday, hoping to tap the French turnaround expert's acumen in improving businesses.

Still, the world's largest electronics retailer's shares fell more than 10 percent Monday as the possibility of a buyout seemed less likely after talks with founder Richard Schulze broke down over the weekend.

Best Buy said late on Sunday that Schulze had rejected its offer to allow him the opportunity to do due diligence and pursue his interest in taking over the company. Schulze balked at conditions connected with the offer.

"It is clear to us that there is quite a bit of acrimony between Mr. Schulze and the board of directors and that this distracting saga isn't close to being finished," RBC Capital Markets analyst Scot Ciccarelli said.

But Ciccarelli and other analysts applauded the appointment of Joly as permanent CEO, as it ends a period of uncertainty and puts someone at the helm with significant experience turning around technology companies.

"He is a little bit older, a little bit more seasoned," said BB&T Capital Markets analyst Anthony Chukumba. "I think this is a home run for Best Buy."

Best Buy has posted same-store sales declines in seven of the last eight quarters. It is expected to report results for the latest quarter on Tuesday.

Best Buy has become a showroom for Amazon.com and other online retailers, with people going to its stores to check out items such as high-definition televisions, and then buying them elsewhere for less.


Joly, 53, has never worked in retail, but he has significant experience improving businesses in the technology, media and services sector.

He drove the turnaround of EDS — now part of Hewlett Packard Co. — in France from 1996 to 1999. He also led the restructuring and growth of Vivendi's video game business — now part of Activision Blizzard Inc. — from 1999 to 2001.

Vivendi's business at the time faced pressure from a changing marketplace, just as Best Buy's business is currently experiencing. In Vivendi's case, it overcame some obstacles by successfully tapping into the growth of online gaming.

Joly's experience with Vivendi "potentially provides him with the necessary tool set to begin a turnaround at Best Buy," Ciccarelli said.

Joly, most recently the CEO of privately held Carlson, succeeds interim CEO Mike Mikan. Mikan took over after the abrupt departure of Brian Dunn in April during a probe that found he had engaged in an improper relationship with a female employee.

Joly is expected to step into his role as president and CEO in early September when his visa is secured, Best Buy said.

At Carlson, Joly strengthened businesses in the customer service sector, including the restaurant and hotel units, which run the T.G.I. Friday's restaurants and Radisson hotels.


Schulze, 71-year-old former chairman of Best Buy, informed the board earlier this month that he was interested in teaming up with private equity partners to buy the company for $24 to $26 per share.

But Schulze had said there were obstacles to him making an official bid, including his inability to access the company's financial data.

Best Buy said on Sunday that it had offered Schulze a proposal that would have provided the opportunity to do due diligence and take a buyout offer directly to shareholders.

It said "Schulze declined to participate."

For his part, Schulze said he was "shocked" by Best Buy's "abrupt termination" of their talks, adding that they had been negotiating over the weekend and expected to conclude the matter before Best Buy reported earnings this week.

The sticking points included a proposal by Best Buy of an 18-month standstill, which Schulze called "completely unacceptable."

Analysts expect Best Buy to lay out a turnaround plan that will focus on building its services business and cutting costs so it can offer lower prices and protect its market share.

"A large-scale turnaround could take two to three years and may be better executed as a private company," said Jefferies analyst Daniel Binder.

Joly said in a statement that he planned to pursue growth opportunities for Best Buy, both online and offline, through "competitive prices, superior service, new growth engines and innovations."

The company said it had a new focus on services, highlighted by newly established relationships with Target, Verizon and AARP.

Best Buy shares fell $2.11, or 10.4 percent, to $18.16 Monday on the New York Stock Exchange.

© 2020 Thomson/Reuters. All rights reserved.

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Monday, 20 August 2012 07:32 AM
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