Best Buy Proposal Highlights the Upsides of Private Life for Big Business

by Kenneth C. Oh on August 14, 2012

Business public New JerseyFor many new and growing New York and New Jersey businesses, the goal is to eventually become a publicly traded company. Therefore, it may seem curious that electronic retailer Best Buy is seeking to go the other direction.

As has been widely reported in the media, Richard Schulze, former chairman of Best Buy, is seeking to acquire all of the outstanding shares of Best Buy (he currently owns 1/5) and return Best Buy to a private company. Schulze is said to be meeting with private-equity firms, while Best Buy’s board of directors considers the offer.

For Best Buy, which has struggled to compete with online electronics retailers, operating as a private company does have its advantages. Most important, it will give the company’s leaders greater control as they seek to reinvent their business model outside the glare of the public and quarterly reports. Schulze reportedly wants to slash prices to compete with Amazon.com and reinvent its brick-and-mortar stores to rival Apple. Managers of private companies often have broader discretion to act without having to seek the approval of the board or shareholders.

Because private companies are less tied to stock prices and dividends, managers also generally have more freedom to focus on long-term goals rather than short-term profitability. Because public companies have significant regulatory and financial reporting obligations, going private would allow Best Buy to take a financial hit outside the glare of the public and quarterly reports while it seeks to reinvent the company.

Of course, operating as a pubic company has its perks too.  Public companies have greater access to capital, are usually better known, have an image of stability, and are better able to promote the company.  Best Buy may lose some of the clout and visibility that goes along with being a public company.  For these reasons, Best Buy’s board and its shareholders will be closely scrutinizing the buyout proposal.

If you have any questions about taking a company private or public or would like to discuss this topic, please contact me, Ken Oh, or the Scarinci Hollenbeck attorney with whom you work. 

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