NEW YORK (Reuters) - Best Buy Co Inc founder Richard Schulze and at least four private equity firms have started examining the books of the world's largest consumer electronics chain, in early steps toward what could become a potential $11 billion buyout, according to people familiar with the matter.
Shares of Best Buy jumped 3.4 percent to $17.55 in premarket trading Wednesday. The stock closed just under $17 on Tuesday, near four-year lows.
Apollo Global Management LLC, Cerberus Capital Management LP, TPG Capital LP and Leonard Green & Partners LP are among firms conducting due diligence on Best Buy, as are Schulze and his financial advisers at Credit Suisse Group AG, several sources told Reuters.
Schulze is also negotiating individually with the private equity firms to iron out details such as how much of his roughly 20 percent stake in the company he would contribute in a bid, and what role he would play after a buyout, the sources said.
The idea is for Schulze to then bring the private equity firms together to form a consortium and submit a buyout proposal to Best Buy, according to the sources, who declined to be identified because of the confidential nature of the discussions.
The process is still in the early stages and no decisions have been made yet, the sources said. One of the sources said the group is not likely to come together with any potential buyout proposal before mid-November.
But the start of due diligence and the negotiations between Schulze and the private equity firms show that Schulze's plan to put together a consortium to buy the company is moving ahead, although he must still leap many hurdles to succeed.
Schulze has said he could buy Best Buy for $24 to $26 a share, valuing it between $8.16 billion to $8.84 billion, or up to $10.9 billion including debt, which would make it the year's biggest leveraged buyout so far.
Credit Suisse declined to comment. Schulze, Best Buy and the private equity firms did not immediately respond to requests for comment.
Schulze, 71, was forced out as Best Buy chairman in June after an internal probe found he had not informed the board of allegations that former Chief Executive Brian Dunn was having an inappropriate relationship with a female employee.
The scandal came amid broader turmoil facing Best Buy, which is struggling in the face of competition from online and discount chains. Critics argue that the company has become a showroom for websites such as Amazon.com Inc, as shoppers go to Best Buy stores to check out electronics such as high-definition televisions, but buy them elsewhere for less.
In August, the company suspended profit forecasts and share buybacks for the rest of the year to give its Chief Executive Hubert Joly, who joined the company last month, time to construct his own turnaround plan.
But Schulze instead proposed to put together a group to rescue the company he founded in 1966. After about a month of contentious negotiations with the Best Buy board, he agreed to make an offer to buy the company within a 60-day period or face a "standstill period" and stay his hand.
The private equity firms signed non-disclosure agreements sometime around mid-September, one of the sources said, but it was not clear precisely when the countdown would begin.
Schulze has said he plans to fund any deal through a combination of private equity financing, reinvestment of his own equity worth over $1.6 billion under such a deal, and debt financing with the help of Credit Suisse.
Schulze's group can have up to six equity financing sources. It could not be immediately determined which other private equity firms might be engaged in the process.
For a group eventually to come together, the private equity firms and Schulze will need to come up with a credible strategy to stop the bleeding at Best Buy and turn around its fortunes.
Some people close to the private equity firms said they remained skeptical of the prospects of a successful deal even as they continued to dwell into Best Buy's confidential financial information, which they find of particular interest given their other retail investments.
Sales at Best Buy stores open at least 14 months fell 3.2 percent in the company's fiscal second quarter ended August 4, the eighth decline in the last nine quarters.
Same-store sales were down 1.6 percent in the United States and 8.2 percent internationally. Best Buy owns Five Star, which has 204 stores in China.
Private equity could bet on international expansion in countries such as China, where consumers are still more inclined to visit shops to get their electronics, though such a strategy would be risky, a private equity source said.
Another factor that could help Schulze form a consortium is the familiarity of private equity firms with one another. Leonard Green and TPG have teamed up before on private equity investments, most recently buying Savers Inc, the largest privately held thrift store chain in North America.
A source familiar with the matter, however, said they had not yet agreed to team up again for Best Buy.
Editing by Ken Wills and Bernadette Baum