The squabble between Best Buy and its founder, Richard Schulze, appears, for the moment, to center on one basic matter: the terms of opening the electronics retailer's books for due diligence.
Though discussions over those conditions seemed to have hit an impasse late on Sunday - Best Buy said that Mr. Schulze had spurned the company's latest offer - talks between the two are still going on, according to people briefed on the matter.
Even publicly, each side hinted that there was a chance that a due diligence pact would be reached. In a statement on Monday, Mr. Schulze said, “I remain hopeful that the board will engage in good faith discussions with us for the benefit of shareholders, employees and customers.â€
And G. Mike Mikan, Best Buy's interim chief executive, said on the company's earnings call on Tuesday, “The only thing I would add to what's been out there in the public marketplace is our proposal still stands and we feel it's up to Dick to respond from there.â€
One of the main sticking points is the duration of any standstill agreement tied to the due diligence. Specifically, the two parties are still negotiating how long Mr. Schulze would be prohibited from going fully hostile in his takeover attempt should the two side fail to reach a friendly deal.
Best Buy initially proposed an 18-month period, which the company founder flatly rejected. That was subsequently shortened to one year, which he again was cool to.
The company then said Mr. Schulze had 60 days to line up a fully financed offer. If Best Buy's directors reject the bid anyway, he would have to wait only until Jan. 1 to take the more drastic step of running a proxy contest to take control of the board. Should he fail to come up with a fully baked proposal within the allotted time, he would be prohibited from acting for an entire year.
People close to Best Buy argue that such an arrangement was standard fare in negotiations wi th private equity firms, much like those with whom Mr. Schulze would need to partner to pull off his deal. But people close to the founder said he balked at certain limits - for instance, should the board turn down his financed offer, he would be prohibited from running a proxy contest unless he kept his existing fully financed takeover bid on the table.
Doing so would obviously cost him additional money. Mr. Schulze finds that unacceptable. Best Buy considers that a cost of taking up that route.
It's possible that the two sides could reach an agreement within days, the people briefed on the matter said. But if no deal emerges, Mr. Schulze would be prepared to run a board challenge, and has hired the proxy solicitation firm D.F. King as an adviser.
He may also call at any time a special meeting of shareholders, which requires the support of 25 percent of existing shareholders - and he holds 20 percent.
Lost in the back-and-forth negotiations seems to be the increasingly tenuous state of Best Buy's financial and operational health. The company reported a 91 percent drop in net income on Monday and weakening sales both at home and abroad.
So while the two sides may continue to bicker over the terms of a standstill agreement, it's clear that whoever ultimately ends up running Best Buy in the end will have less time to steer the retailer away from disaster.
