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Investors like their Best Buy (NYSE: BBY ) the way that a guillotine maker likes its users: headless.
Shares of the consumer electronics maker opened lower this morning after it announced a new CEO. Hubert Joly -- formerly the head of T.G.I. Friday's and Radisson parent Carlson -- is Best Buy's new chieftain.
T.G.I. Friday's? Really? Does that mean that apart from harassing customers at the checkout line to add unnecessary warranty extensions and overpriced protection services they'll also be asked if they want to add some fried apps or a Skinny Margarita to their order?
Best Buy, if it's not too late, see if you can baste those Insignia TVs that aren't selling in some Jack Daniel's marinade. I hear the tangy sweetness changes everything.
But seriously, Best Buy is doing its shareholders a major disservice by hiring any CEO today.
A muddy track doesn't need hurdles
Founder Richard Schulze has been trying to get the meandering retailer to warm up to the possibility of being taken private by Schulze and an army of private equity firms for weeks. He has publicly tossed out a price between $24 and $26 a share, but that's only going to go lower if the chain's fundamentals continue to deteriorate or Best Buy makes itself harder to acquire.
Spoiler alert: Hiring a new CEO makes it harder to complete a buyout.
For starters, it will make it more expensive for a buyer. No one would take the top job at Best Buy unless it was attached to a juicy golden parachute if an acquisition does take place. Schulze's foolish pride may be enough to stomach the extra tab, but the number-crunching investors at his side are going to want to deduct all of that from the eventual buyout price. In other words, Best Buy shareholders are more than likely to now receive less if a formal bid comes in.
The move may also turn Schulze off entirely. Why waste his time on Best Buy? He can probably snap up RadioShack (NYSE: RSH ) -- which is where Best Buy is heading anyway with its smaller Best Buy Mobile stores -- where he would be welcomed as a hero. Let Best Buy follow the arrogance that led Circuit City to rebuff a couple of buyout offers before imploding in bankruptcy liquidation.
It just doesn't check out
There are two sides to every story. Best Buy claims that it was willing to divulge its nonpublic financials to Schulze's partners, yet Schulze argues that the retailer initially wanted 18 months to see if it could turn things around on its own.
It's a soap opera, and you can watch it from one of Best Buy's Magnolia Home Theater setups. The staff won't mind. It's not as if they're busy selling high-def TVs that savvy shoppers are buying for less at Amazon.com (Nasdaq: AMZN ) anyway.
In Best Buy's eyes, bringing in an outsider with a penchant for turnarounds is just the ticket to buy the company some time. Bloomberg reported last month that an independent consultant for the retailer's compensation committee resigned after Best Buy awarded 100 managers with retention bonuses that aren't tied to actual performance targets.
One can only imagine the kind of shareholder-insensitive deal that Joly signed.
Best Buy's board isn't necessarily trying to be malicious. Brainless moves including the retention bonuses for managers at a time when stores are closing and the audacity of spending shareholder money on a new CEO when there's a legitimate offer of interest on the table are testaments to incompetence and not deliberate sabotage.
However, it's hard to fathom what Best Buy's board sees as so exciting about its future to think that it can do better on its own. Physical media continues to go digital as CDs, books, movies, and software bypass traditional distribution. Best Buy will never compete with Amazon.com and smaller online retailers on price given the overhead associated with running a bricks-and-mortar chain.
Emphasizing appliance sales the way that hhgregg (NYSE: HGG ) and Conn's (Nasdaq: CONN ) are doing -- heavy items that can't be made obsolete by digital delivery and are prohibitive to ship by e-tailers -- would mean far fewer stores with a lot less repeat business.
If the chain can be fixed -- and it probably can't -- it's going to have to happen as a private company, outside of the quarterly disappointments that it will suffer as a public company.
Why would Best Buy hire a CEO when it has a guy that knows the company better than anyone open to take it private at a reasonable premium? Please don't tell me that Best Buy seriously believes that it will be able to move its share price higher on its own.
I have 100 managers with retention bonuses this summer that will reportedly argue that Best Buy isn't considering that as a possibility.
Best Buy is not a good buy
I entered a bearish CAPScall on Best Buy in Motley Fool CAPS last year. The call is beating the market so far -- because Best Buy is not. If you want to play nice with the trends that will pay off in the future, forget Best Buy and begin reading up on the stocks that smart investors are buying. It's a free report, but it will only be available for a limited time so check it out now.