U.S. electronics chain Best Buy Co Inc named Hubert Joly, the former head of hospitality and travel company Carlson, as its new chief executive on Monday, hoping to tap his experience in turning around ailing businesses.
The naming of a permanent CEO ends months of uncertainty at the world's largest consumer electronics chain stemming from the abrupt departure of its prior CEO, Brian Dunn, in April.
But shares of Best Buy fell more than 10 percent amid concern about Joly's lack of experience as a retail CEO and questions about the abrupt breakdown of takeover talks with founder Richard Schulze over the weekend, leaving the future of his pursuit of the company in question.
"It is clear to us that there is quite a bit of acrimony between Mr. Schulze and the board of directors and that this distracting saga isn't close to being finished," RBC Capital Markets analyst Scot Ciccarelli said.
Best Buy said on Sunday Schulze had rejected its offer to allow him the chance to do due diligence and pursue a takeover. Schulze balked at the board's requirement that would have prevented him from publicly making a bid for the company for 18 months.
Over the course of the talks, Best Buy said it was willing to agree on looser terms, dropping the standstill agreement from 18 months to 12 months. The company then offered a standstill for 4 months but only with substantial conditions, including that if Schulze's offer was rejected by the Board, he would have to keep the offer fully financed throughout any proxy contest in 2013, a person familiar with the matter said.
Schulze had agreed to a year-end standstill without the conditions in a late afternoon call on Sunday, the person said. Schulze and his advisers waited for the company response, learning only from a company press release a few hours later that the Best Buy board had terminated negotiations.
Best Buy declined to comment on the weekend negotiations.
Schulze said on Monday he would continue to pursue his proposal to take the company private. He also called Joly an "accomplished executive" but said the retailer needed a "leadership team with deep retail experience and knowledge of Best Buy".
Joly, 53, who most recently was CEO of privately held Carlson in Best Buy's home state of Minnesota, tried to answer concerns about his retail experience on Monday, noting that he was on the board of Ralph Lauren Corp..
The Frenchman faces the tough task of fixing Best Buy, which is struggling to fend off online and discount rivals and shoppers' tendency to check out gadgets at brick and mortar stores and then buy them for less online.
The company could give clues to its turnaround plan as early as Tuesday, when it is expected to post the eighth decline in same-store sales in nine quarters.
NECESSARY TOOL SET
Joly drove the turnaround of the French business of EDS - now part of Hewlett Packard Co - from 1996 to 1999. He also led the restructuring of Vivendi's video game business - which was later combined with Activision Blizzard Inc - from 1999 to 2001. In that instance, Vivendi successfully tapped into the growth of online gaming.
"I spent a fair bit of my life moving brick and mortar businesses to be clicks and bricks," Joly told Reuters in an interview on Monday afternoon.
Joly's experience with Vivendi "potentially provides him with the necessary tool set to begin a turnaround at Best Buy," Ciccarelli said.
Joly noted that while at Vivendi, he called on Best Buy several times a year as one of its key retail partners.
At Carlson, Joly strengthened businesses in the customer service sector, including the restaurant and hotel units, which run the T.G.I. Friday's restaurants and Radisson hotels.
"My instinct is that this is like any other turnaround," Joly said of Best Buy. "It is going to be a combination of making sure we are very efficient, that our customer service is stellar, that our prices are competitive."
Joly succeeds interim CEO Mike Mikan, who took over after the abrupt departure of Brian Dunn in April during a probe that found he had engaged in an improper relationship with a female employee. The probe also found that Schulze failed to notify the board about allegations against Dunn that led to Schulze losing his chairmanship.
Joly is expected to step into his role as president and CEO in early September when his visa is secured, Best Buy said.
TALKS BREAKING DOWN
Schulze, the 71-year-old former chairman of Best Buy, informed the board earlier this month that he was interested in teaming up with private equity partners to buy the company for $24 to $26 per share.
But Schulze had said there were obstacles to him making an official bid, including his inability to access the company's financial data.
"We had believed we were close to an agreement for a reasonable standstill period and are eager to resume our discussions immediately if the board is truly interested in reaching an agreement in shareholders' interests," Schulze said.
The negotiations on the standstill agreement were led by the Shearman & Sterling LLP and Simpson Thacher & Bartlett LLP, legal advisers to Schulze and Best Buy respectively.
Analysts expect Best Buy to lay out a turnaround plan that will focus on building its services business and cutting costs so it can offer lower prices and protect its market share.
"A large-scale turnaround could take two to three years and may be better executed as a private company," said Jefferies analyst Daniel Binder.
Best Buy shares closed down 10.4 percent at $18.16 Monday on the New York Stock Exchange.
(Reporting by Dhanya Skariachan, Martinne Geller and Nadia Damouni in New York; Editing by John Wallace, Maureen Bavdek, Phil Berlowitz and Andrew Hay)