Why Best Buy Shares Skyrocketed

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Best Buy (NYSE: BBY  ) soared 15% on Monday after founder Richard Schulze offered to take the embattled electronics retailer private for about $8.8 billion.

So what: Schulze said he is willing to pay between $24 and $26 per share for the company, representing a 36% to 47% premium over Best Buy's closing price on Friday. Increasingly fierce online competition has forced the company to shrink its "big box" strategy and focus on higher growth products like smartphones, prompting Schulze to call this "the moment of truth for Best Buy."

Now what: In a letter to shareholders, Schulze said he has had conversations with several premier private equity firms interested in a possible acquisition. "Bold and extensive changes are needed for Best Buy to return to market leadership," Schulz wrote. "The company's best chance for renewed success will be to implement these changes under a different ownership structure." Given the fact that financing has yet to be obtained and that no firms were specifically named by Schulze, however, I'd be cautious about buying into today's buyout buzz.

Interested in more info on Best Buy? Add it to your watchlist.

Fool contributor Brian Pacampara owns no position in any of the companies mentioned. The Motley Fool owns shares of Best Buy. Try any of our Foolish newsletter services free for 30 days.

We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool's disclosure policy always gets a perfect score.


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