Free Money — If Best Buy Deal Proceeds

by Traders Reserve | October 3, 2012 11:52 am

Free Money — If Best Buy Deal Proceeds

BestBuyLogo e1297955683480 Free Money    If Best Buy Deal ProceedsReuters and virtually every other financial news outlet is reporting that Best Buy (NYSE:BBY[1]) founder Richard Schulze and at least four private equity firms are conducting due diligence[2] with respect to a potential acquisition of the struggling electronics retailer.

The news comes on the heels of Schulze having negotiated a 60-day window for him to make an offer for the company or face a stand-still period. Schulze had previously said he would like to buy the company for $24 to $26 per share. That represents a significant premium to the current price. Shares of Best Buy are up around 4%  in early trading today, still well under the lower $24 per share price.

Analysis

The market clearly does not believe that Schulze can close[3] on a transaction. While certain hurdles remain, Schulze does have a number of things going for him that might ultimately allow for a deal to be completed.

Let’s face it: This guy is persistent, just as any founder of a huge successful company must be. He will not go away quietly. More importantly, with some 20% of the company under his control he is in a unique position to make this deal happen. Never mind that Best Buy may not survive in the long run. That is a worry for after a deal is done.

For now, traders should look at this purely on the basis of whether or not Schulze can put the pieces together[4]. Even if a deal fails to transpire, the company is working feverishly on a turnaround that just might work. It would seem to be a risk worth taking.

Action: I would look to own January expiration call options with a strike price approximately the value of Schulze’s bid.

Endnotes:
  1. BBY: http://studio-5.financialcontent.com/investplace/quote?Symbol=BBY
  2. conducting due diligence: http://investorplace.com/2012/10/schulze-private-equity-firms-examine-best-buys-books/
  3. market clearly does not believe that Schulze can close: http://investorplace.com/2012/08/best-buy-where-we-are-today-bby-cs-mco/
  4. put the pieces together: http://investorplace.com/2012/09/staples-best-buy-might-just-wash-each-other-out-spls-bby-odp-oxm-cs/

Source URL: http://investorplace.com/2012/10/free-money-if-best-buy-deal-proceeds-bby/
Short URL: http://invstplc.com/1nGjsgX