BargainValueHunter Posted November 20, 2012 Share Posted November 20, 2012 After doing some reading over the weekend, I initiated a position in BBY today (just for the catalyst). If they sell the European and Asian assets with 1-1.25 bn proceed, at $20.5 (base case) with 30% equity (including Schulze equity), the purchase is doable at ~4x Debt/EBITDAR. Also, they will lose the dividend. There's enough kinks to make it work and I don't think he comes in at 24-26. If you do 30% premium of the last 30 days avg you get to ~21. I think he lowballs at 19.5, then comes in at 20.5-21. Thanks for bringing bby up again. I also added to AAP today, it's an interesting story, I'm thinking somewhere between 90-100, there is a lot a private equity buyer can do...1. company has two headquarters, 2. private label penetration is in the mid 20% whereas for AZO it's around 50%, 3. AP/Inventory ratio still lags, 4. There is no reason for this company to have $500MM cash, it's about $450MM too much. 5. Opportunity to do a lot of sale leasebacks. Perhaps he comes in with a $5 billion offer now? http://www.bloomberg.com/news/2012-11-16/schulze-said-to-still-be-exploring-buyout-offer-for-best-buy-1-.html Best Buy Co. (BBY) founder Richard Schulze is still exploring a buyout offer for the retailer and is likely to seek a 30-day extension to conduct due diligence, according to two people with knowledge of the matter. Potential private-equity investors have become more concerned about participating in a deal as Best Buy’s stock price drops, said the people, who asked not to be identified because the matter is private. Best Buy’s board may be more likely to back an offer from Schulze after recent earnings reports, another person said. Best Buy tumbled to its lowest price in a decade today after a Citigroup Inc. analyst said initiatives to turn around the company may not be enough to fend off online rivals. Schulze, Best Buy’s former chairman, offered to take the electronics retailer private at $24 to $26 a share in August. BBY can be had for a bit more than $4 billion now. And with that you get $50 BILLION in sales?!?! Wow! Link to comment Share on other sites More sharing options...
LC Posted November 21, 2012 Share Posted November 21, 2012 By the way, Schulze or someone else needs to come in, because these guys are following the Lampert Kmart/Sears strategy at the moment...drip, drip, drip away shareholder value. This "Renew Blue" shit drives me crazy! You need to shut 15-20% of the stores down now! Sublease, sell or whatever you have to do. You need to cut G&A by $400M a quarter...simple! Painful, yes...but it has to be done. You can always reopen more stores as housing and consumer consumption increases, but there is a fundamental shift in the way people buy certain non-perishable goods now. Combine that with very defined consumption by a still wary consumer, and you have a business that needs to reexamine its complete footprint. Cheers! Great analysis, my mind was thinking of the quote that being a good businessman makes you a better investor and vice versa. Link to comment Share on other sites More sharing options...
premfan Posted November 21, 2012 Share Posted November 21, 2012 + 1 Link to comment Share on other sites More sharing options...
VAL9000 Posted November 21, 2012 Share Posted November 21, 2012 My thought was that BBY should shut down half their stores (going to 1-2 stores per metro area), and then convert to a Amazon.com meets Best Buy hybrid. That is, use less floor space for retailing, use more floor space for warehousing, and emphasize same-day/next-day delivery from each of these mini warehouses. Selling would move to a primarily online experience with in-store capabilities for those gotta-have-it-now items. In addition, if BBY focused on the rapid delivery model, they could sell more value-add services like in-home setup and installation. Link to comment Share on other sites More sharing options...
rjstc Posted November 21, 2012 Share Posted November 21, 2012 I just recently bought some items at BBY. I'm clueless about electronics stuff. For $100.00 they sent a geek guy to check out what was wrong with my home entertainment system. Turns out everything was fine except for something called a sub woofer. I went back to the store and bought one. They didn't try to over sell. They sent the Geek guy back to hook up everything at no additional cost. It was a good customer experience. They had a lot of floor staff, so you didn't have to wait for help. This was two weeks ago and they were very busy. I do own the stock by the way. Link to comment Share on other sites More sharing options...
Parsad Posted November 21, 2012 Share Posted November 21, 2012 My thought was that BBY should shut down half their stores (going to 1-2 stores per metro area), and then convert to a Amazon.com meets Best Buy hybrid. That is, use less floor space for retailing, use more floor space for warehousing, and emphasize same-day/next-day delivery from each of these mini warehouses. Selling would move to a primarily online experience with in-store capabilities for those gotta-have-it-now items. In addition, if BBY focused on the rapid delivery model, they could sell more value-add services like in-home setup and installation. You would think this would be common sense. There is always going to be a certain percentage, and I would say a majority, who will prefer to buy their electronics in person, so they can hear it, see it and talk about it with someone. But why wouldn't you shut down alot of your non-core, unprofitable locations, but keep your warehouses in place, and move to a hybrid Amazon distribution system. They've already got the online business in place...it's a question of shifting more of it to that distribution system, and trying to get it as efficient as Amazon's. I've never seen a business that sells any product, generates revenue and cannot be profitable...it just doesn't happen. The only time it happens is if the actual underlying operations are inefficient (G&A, debt & interest, lease rates, etc) or you are in a model that is growing revenue by paying for it (alot of IT startups)! The first is fixable, but the second is just a business model flaw. It's why I've always contested that there is no reason why Overstock.com could not be profitable in any given year...you have a billion in revenue but your operating costs and other expenses are too high...it was a simple fix. Best Buy is the same way. They make money on their sale of products, but their operating expenses are too high and they are not getting the best bang for buck from alot of their locations. You cannot take your sweet time correcting these things, because you only fall behind the curve and destroy more shareholder value. Let's see if someone can kick their ass into high speed. Cheers! Link to comment Share on other sites More sharing options...
rjstc Posted November 21, 2012 Share Posted November 21, 2012 My thought was that BBY should shut down half their stores (going to 1-2 stores per metro area), and then convert to a Amazon.com meets Best Buy hybrid. That is, use less floor space for retailing, use more floor space for warehousing, and emphasize same-day/next-day delivery from each of these mini warehouses. Selling would move to a primarily online experience with in-store capabilities for those gotta-have-it-now items. In addition, if BBY focused on the rapid delivery model, they could sell more value-add services like in-home setup and installation. You would think this would be common sense. There is always going to be a certain percentage, and I would say a majority, who will prefer to buy their electronics in person, so they can hear it, see it and talk about it with someone. But why wouldn't you shut down alot of your non-core, unprofitable locations, but keep your warehouses in place, and move to a hybrid Amazon distribution system. They've already got the online business in place...it's a question of shifting more of it to that distribution system, and trying to get it as efficient as Amazon's. I've never seen a business that sells any product, generates revenue and cannot be profitable...it just doesn't happen. The only time it happens is if the actual underlying operations are inefficient (G&A, debt & interest, lease rates, etc) or you are in a model that is growing revenue by paying for it (alot of IT startups)! The first is fixable, but the second is just a business model flaw. It's why I've always contested that there is no reason why Overstock.com could not be profitable in any given year...you have a billion in revenue but your operating costs and other expenses are too high...it was a simple fix. Best Buy is the same way. They make money on their sale of products, but their operating expenses are too high and they are not getting the best bang for buck from alot of their locations. You cannot take your sweet time correcting these things, because you only fall behind the curve and destroy more shareholder value. Let's see if someone can kick their ass into high speed. Cheers! I completely agree. But will they move too slow? Also in Calif they should get help from both them and Amazon having to collect sales tax. Where I live that amounted to about 10% advantage to Amazon right off the top. Very unfair. Link to comment Share on other sites More sharing options...
alertmeipp Posted November 21, 2012 Share Posted November 21, 2012 are u all buying for the possible buyout? or in belief that BBY's business can be fixed over time? I am not sure how the buyout impact management's motivation/commitment now to do the big fix. (like they may have a new boss soon but why risk doing things now?) Link to comment Share on other sites More sharing options...
ShahKhezri Posted November 22, 2012 Share Posted November 22, 2012 are u all buying for the possible buyout? or in belief that BBY's business can be fixed over time? I am not sure how the buyout impact management's motivation/commitment now to do the big fix. (like they may have a new boss soon but why risk doing things now?) I bought because of the buyout. We'll see if it happens. On a slightly different topic, re: capital allocation, this is a good example on why repurchasing shares is not the best idea and why the fed has actually been a benefit to the financials if you think about it. Submit a plan on what happens to your balance sheet when margins compress, sales declines by 5-10% (because sometimes as crazy as that sounds, it does happen), then consider your options on the dividend/share repurchases. They should have invested in the business, knowing there was a price disadvantage, cut the dividend, stop the repurchase...also why I think this is a good PEG candidate. 1. 71% of their leases are up for renewal in the next 5 years, 2. they can stop the bleeding (by cutting the dividend/repurchases). 3. Stop the management musical chair. This is my comment from earlier in the year, 1/7/12: Good luck to all longs, seems like there is an argument to be made on the long side, I'm not rooting against you as I don't have a short on BBY. However, I think the argument that there is little to no leverage for BBY is flawed, a 5-10% decline in sales will eliminate the share repurchase, putting leases back on B/S going forward is going to make book leverage and operating leverage evident. But I'm bias, I promised myself not to invest in businesses that are in secular decline and an electronics retailer is in that box (and I don't want AMZN as a competitor). How much of that past revenue number was a result of 0% 12-month financing? A 50 inch TV used to cost $4,000, now you can get a nice one for under $600 and 3D TV's have been a flop. A customer was willing to buy warranty on a computer that cost $2,000-3,000...is that same customer willing to purchase warranty on that same computer that now costs $500-600? Can the company turnaround? Sure, but look at what they are telling you, Best Buy Mobile, trying to compete against Gamestop...these are saturated markets. These are business questions, not valuation questions and personally I have to feel comfortable with the business and where it's headed before the valuation becomes tempting to me. I understand the shot-gun approach to cigar butts but this is not a cigar butt. Ackmans presentation on Lowes was on valuation (historical and relative), they owned their own real estate, strong share repurchase and the fact that online represents little danger to this type of retailer. Here we have a company that has a cheap valuation, strong repurchases with off balance sheet liabilities and online competition. Based on the link above, (http://www.bbycommunications.com/briandunn/?p=1439&t=dbrief#comments) The comments from past employees is entertaining. Not to high-jack the thread, but I'm invested in VRSK, makes up about 4% of my portfolio as a result of the high multiple. They have absolutely no competition, unlike BBY/RIMM and some of the other cheap (based on metrics) stocks discussed here. Good businesses with enviable operating margins and durable competitive advantages with a moat deserve to trade a high multiple. VRSK should have never been public, just like Visa, the same story on why they are public. Having worked in the insurance industry, VRSK's ISO is the equivalent of water to a fish. BBY on the other hand is not even a cigar butt (IMO), the poster talking about 8x lease is correct. It's a highly leveraged business, if you model a 10% drop in revenues then what happens to the share repurchases, gone and there is no floor provided by the company. How much of their square footage was devoted to DVD's, video games, computer peripherals? and what do you with that space? They are trying to move a big ship. Every IPAD sold at BBY results in lower future sales for BBY. Link to comment Share on other sites More sharing options...
Parsad Posted November 26, 2012 Share Posted November 26, 2012 Best Buy traffic was up big in the last week. Cheers! http://finance.yahoo.com/news/best-buy-big-traffic-winner-200900084.html Link to comment Share on other sites More sharing options...
ubuy2wron Posted November 30, 2012 Share Posted November 30, 2012 Best Buy traffic was up big in the last week. Cheers! http://finance.yahoo.com/news/best-buy-big-traffic-winner-200900084.html The only week of the year that it is cheaper to buy @ BBY vs AMZN. This deal seems likely to go through however you may make more money shorting the bonds than buying the stock. I think there is easier ways to make a buck than fighting against AMZN for share of consumer electronics frankly I think its going to be tough for the guy spear heading this deal to keep his partners on side plus the longer he waits the cheaper it gets. Link to comment Share on other sites More sharing options...
stahleyp Posted December 8, 2012 Share Posted December 8, 2012 Good publicity...not so sure how good inventory management is though. http://finance.yahoo.com/news/best-buy-sends-customers-5-201100187.html Link to comment Share on other sites More sharing options...
alertmeipp Posted December 8, 2012 Share Posted December 8, 2012 Good publicity...not so sure how good inventory management is though. http://finance.yahoo.com/news/best-buy-sends-customers-5-201100187.html wow, that smells bad, poor decision and management. Link to comment Share on other sites More sharing options...
Ghost Posted December 13, 2012 Share Posted December 13, 2012 Christmas came early http://www.4-traders.com/BEST-BUY-CO-INC-11778/news/Best-Buy-founder-to-make-$5-$6-billion-bid-15592429/ Link to comment Share on other sites More sharing options...
Parsad Posted December 13, 2012 Share Posted December 13, 2012 Christmas came early http://www.4-traders.com/BEST-BUY-CO-INC-11778/news/Best-Buy-founder-to-make-$5-$6-billion-bid-15592429/ Yup, it's been a killer month for us in both funds! BAC, BAC-WTA, LUK, JEF, DELL, BBY...if HOTR would only start trading, we'd have the best single month in our short history. Cheers! Link to comment Share on other sites More sharing options...
bmichaud Posted December 13, 2012 Share Posted December 13, 2012 Congrats Parsad! Was just about to PM you saying I gathered from your bullish BBY commentary that you were long, and congrats on the news today 8) Link to comment Share on other sites More sharing options...
Ghost Posted December 13, 2012 Share Posted December 13, 2012 What you think the odds are on the offer? (15 - 18) I say higher probability of over 17$, considering Schulze already wanted to offer 24$. I would be shocked if the board accepted it. Link to comment Share on other sites More sharing options...
Cardboard Posted December 13, 2012 Share Posted December 13, 2012 Not into Best Buy any longer with my calls having expired worthless and not sure to want to look at it again. These leaks and rumours seem to come and go all the time. If you could be plugged into the ones generating these rumours and trading ahead of time you would make Cohen like returns taking no risk. I am having a terrific investing year and looking at where the big money has been made it wasn't in speculating on takeover deals. Just cheap stocks where things turned out better than expected by the Street and where the undervaluation has been reduced. I may plow more into plain undervalued names such as BAC and AIG via the warrants or the stock. I need to catch up with Ericopoly and want to be sitting quickly at the grand table with these 80,000 other people. Cardboard Link to comment Share on other sites More sharing options...
Parsad Posted December 13, 2012 Share Posted December 13, 2012 What you think the odds are on the offer? (15 - 18) I say higher probability of over 17$, considering Schulze already wanted to offer 24$. I would be shocked if the board accepted it. He can adjust it until he actually tenders the offer...so with the stock at $14, I don't think he's going to offer anything less than $16.50-17.50. He's probably not going to offer much more than that at best. Cheers! Link to comment Share on other sites More sharing options...
Ghost Posted December 14, 2012 Share Posted December 14, 2012 Well that is an interesting opening. I guess the market does not believe the offer will go through. Link to comment Share on other sites More sharing options...
shalab Posted December 14, 2012 Share Posted December 14, 2012 Sanjeev, are you buying with today's drop? It sure looks interesting at these price points. Link to comment Share on other sites More sharing options...
Parsad Posted December 14, 2012 Share Posted December 14, 2012 Sanjeev, are you buying with today's drop? It sure looks interesting at these price points. I didn't trust the rumor, so we sold all of our March '13 call options yesterday with a nice fat gain in the U.S. fund. We also sold half the shares in the Canadian fund for a nice profit. We'll probably keep buying again if it keeps going lower and lower. Although, I'm sure people at some point are going to get fatigued from the rumors. It's cheap...it needs to be shrunk quickly like Sears should have. So if somebody doesn't get in there to do it, it's not going to end well. Cheers! Link to comment Share on other sites More sharing options...
enoch01 Posted December 18, 2012 Share Posted December 18, 2012 Jeff Matthews catalogs the myriad leaks and rumors: http://jeffmatthewsisnotmakingthisup.blogspot.com/2012/12/psst-wanna-bum-steer.html Link to comment Share on other sites More sharing options...
Junto Posted March 1, 2013 Share Posted March 1, 2013 Best Buy Founder fails in bid according to Star Tribune in Minneapolis / St. Paul http://www.startribune.com/business/193875901.html Link to comment Share on other sites More sharing options...
tooskinneejs Posted April 4, 2013 Share Posted April 4, 2013 Best Buy's run has gone further than I thought it would absent a takeover :), with further gains today due to an announcement of the opening of Samsung Experience Shops within Best Buy stores. The shops will be run by Samsung employees and, presumably, mimic Apple stores. Interestingly, it appears Best Buy is taking a page out of JC Penney's playbook (opening stores within stores). Link to comment Share on other sites More sharing options...
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