Best Buy hires Joly as new CEO
NEW YORK (AP) — The fight over Best Buy's future is getting ugly.
Best Buy Co, the nation's largest consumer electronics chain, announced Monday it has tapped Hubert Joly, the former head of global hospitality company Carlson and a turnaround expert, as the new CEO and president. The move comes a day after talks between the ailing retailer and its co-founder, former chairman and largest shareholder Richard Schulze failed over his takeover bid proposal.
In a statement issued Monday, Schulze criticized the choice and vowed he would go forward with his proposal to take the company private.
"Best Buy continues to face enormous challenges and needs a clear plan and a proven leadership team with deep retail experience and knowledge of Best Buy to win back customers, inspire employees and reinvigorate its trusted brand," Schulze said in a statement.
Wall Street also didn't like the news, and investors sent Best Buy shares down more than 10 percent.
"A large scale turnaround could take two to three years and may be better executed as a private company," wrote David Binder, analyst at Jeffries & Co.
Despite the reaction to the news, the announcement of Joly's appointment as CEO adds some stability to a company that has been badly lacking it. Former CEO Brian Dunn left in April amid a company investigation into an "improper relationship" with a 29-year-old female employee. Schulze resigned as chairman a month later after the probe found that he knew about the relationship and failed to alert the board or human resources. Meanwhile, the company has struggled against growing competition and people's changing shopping habits.
Joly, who is French and is expected to take over as CEO in early September when his visa is secured, succeeds Mike Mikan, a board member who has served as interim CEO since Dunn resigned in April. Over the past 15 years, Joly has developed a track record of successful turnarounds and growth in the media, technology and service sectors.
Joly spearheaded the turnaround of EDS, now part of HP, in France from 1996 to 1999. He also led the restructuring and growth of Vivendi's video game's business, now part of Activision Blizzard, from 1999 to 2001. He later oversaw the integration of Universal and Vivendi's media assets in the U.S. and was part of the team that led the restructuring of Vivendi in 2002 to 2004.
Most recently, Joly led the transformation of Carslon Wagonlit Travel into the global leader in corporate travel management. In 2008, he became the CEO of CWT's parent, Carlson, based in Minneapolis, whose brands employ more than 170,000 people in 150 countries. As CEO of Carlson, Joly spearheaded a strategy to bolster the company's leadership position across its businesses, including its restaurant division with more than 900 T.G.I. Friday's restaurants and its hotel division with more than 1,000 hotels around the world.
The company is hoping Joly will help Best Buy avoid the fate of its rival Circuit City, which went bankrupt in 2009. Best Buy has struggled with weak sales since the middle of the recession as its big-box stores have become outdated. The stores, which shoppers once flocked to, are becoming unprofitable as customers increasingly use them to browse for electronics, but then buy them cheaper elsewhere.
Best Buy has seen annual declines in revenue at stores opened at least a year for two of the last three years. It posted a 1.8 percent drop in the latest fiscal year that ended March 3, a modest 0.6 percent gain in fiscal 2011 and a 1.3 percent decline in fiscal 2010.
Before the scandal with former CEO Dunn, the company begun to address its problems. In March, it announced a major restructuring that includes closing 50 stores, cutting 400 corporate jobs and trimming $800 million in costs.
Since then, interim CEO Mikan has been making strong statements about how he plans to restructure the company, focusing on services and revamping stores. In early July, Best Buy said it would lay off 600 staffers in its Geek Squad technical support division and 1,800 other store workers. The company also has been shrinking store size and focusing on its more-profitable products such as mobile phones.
But analysts — and investors — have been impatient with the company. Analysts have maintained that some of these changes are too late. They also say that Best Buy needs to close more of its big-box stores, which no longer are necessary since people have shifted from buying big computers and TVs to snapping up smaller items like tablets and mobile phones.
Wall Street has been equally unforgiving of Best Buy's timing. Best Buy shares have lost nearly 70 percent of their value since their pre-recession peak of $56.66 in May 2006. On Monday, they fell $2.11 to close at $18.16, the low end of the company's 52-week per share range of $16.97 to $28.53.
One of the most vocal critics of the company in recent months has been the company's co-founder. Earlier this month, Schulze, who has a 20 percent stake in the company, made a takeover offer for the chain, offering $24 to $26 per share. Best Buy had said it was considering the offer, which values the company at $8.84 billion.
Schulze said Thursday that he was committed to his offer for the electronics retailer and has heard from a number of private equity firms prepared to make "significant commitments." But Best Buy and Schulze went back and forth in public announcements over the weekend.
In a statement issued by Best Buy Sunday, it laid out certain terms for acquisition talks to proceed.
"The board showed great flexibility in the details around how an agreement with Mr. Schulze could be implemented so as not to limit his ability to make a definitive proposal for the company that was in the best interest of the shareholders," according to Sunday's statement from Best Buy. "Mr. Schulze did not accept the company proposal."
In response, Schulze issued his own statement on Monday: "I am disappointed and surprised by the Best Buy Board's abrupt termination of our discussions. For the record, we engaged in good-faith negotiations with Best Buy's Board and its advisors over the weekend and expected to conclude this matter before the company's earnings announcement early this week."
Schulze called out one term that he described as "unacceptable" — Best Buy's board had initially demanded that he refrain from directly approaching shareholders with his proposal for 18 months. He said he was in the process of negotiating a shorter "standstill" period when the board issued the statement Sunday.
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