If you were Best Buy founder Richard Schulze, how much would you pay to acquire the shares of Best Buy that you don’t already own? $24 a share? $26? $30? Surely it’d get too expensive for you above $30 or so?*
Nope! The more expensive it is for him the more money he saves, or rather gets, because he is not offering to buy Best Buy, but to sell it. From the Journal:
In his letter to the board, Mr. Schulze said he would finance the transaction through a combination of investments from private-equity firms, his equity investment of approximately $1 billion, and debt. His adviser, Credit Suisse, is “highly confident” Mr. Schulze could arrange the necessary debt financing, according to his statement.
Because Mr. Schulze’s holding of 68.9 million shares would be worth at least $1.65 billion, his proposal indicates he would divest himself of some of his personal stake as part of a transaction.
I had trouble believing this – perhaps he rounds down unconventionally, or he meant he was kicking in an extra $1bn in cash for the equity check? – but it seems to be true. Schulze’s press release says that “he plans to finance the proposed acquisition through a combination of investments from the private equity firms, reinvestment of approximately $1 billion of his own equity, and debt financing,” which sure does sound like he’s kicking in some but not all of his shares. If so, the higher the price, the better of Schulze is: at $24, he can have his billion-dollar stake while cashing out $650mm, at $26 he gets $790mm, and at $30 he takes out over a billion dollars. He is perhaps more diluted in the new company at these levels – and/or the newco is more leveraged – but … um … that’s usually what happens when someone gives you money in exchange for stock, isn’t it? Read more »