Best Buy-Out? Not Likely, Says Analyst
By: Katie Little | News Associate
Although Best Buy’s co-founder and former chairman Richard Schulze has been jockeying to buy the consumer electronics chain, one analyst said a buyout is unlikely.
“It’s no secret that Best Buy’s had a number of problems lately as it’s dealt with competition and a lack of a product cycle,” said Brian Nagel, a retail analyst at Oppenheimer, told CNBC's "Squawk on the Street."
Still, the company is in decent shape, generates a lot of cash and maintains a solid balance sheet, Nagel added. Although money should make it easier for the company to strike a deal to take it private, Nagel does not see that in the cards. The analyst thinks Best Buy’s board and management are likely to balk at bids they consider “low-ball” offers.
On Monday, Best Buy’s shares jumped after it announced it would let Schulze conduct due diligence as he tries to take the retailer private, by partnering with private-equity sponsors.
“We think that what’s going to happen here is that ultimately private equity buyers will balk at what is, in our view, a deteriorating business model with really no exit strategy,” he said.
Nagel has a “market perform” rating on the company’s shares, along with a $17 price target, which is slightly lower than its current price.
Best Buy’s vast retail footprint is one area that needs fixing, Nagel said. The company has roughly 1,100 stores — a big chunk of which are arguably too large and should be significantly smaller, Nagel said.
Despite these issues, Nagel said the company is still “the leading consumer electronics retailer in the world.” He predicted that its cash flow and profitability will likely hold for a while, given its underlying strength and ability to control costs.
—By CNBC.com’s Katie Little; Follow Her on Twitter@katie_little
Additional News: Best Buy, Founder Reach Deal
Additional Views: Best Buy Margins ‘In a Downward Spiral’: Analyst
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Disclosures:
Brian Nagel does not own shares of Best Buy.
