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Although stocks finished well off their intra-day highs on Monday, all three major indices managed to post gains. The S&P 500 (NYSEARCA:SPY) and Nasdaq (NASDAQ:QQQ) increased 0.74 percent and 0.23 percent, respectively, while the Dow Jones Industrial Average (NYSEARCA:DIA) edged 0.16 percent higher. The blue-chip index narrowly avoided its 10th consecutive Monday loss. Even some of the most hated stocks on Wall Street found a way to climb higher.
Best Buy (NYSE:BBY), an American specialty retailer of consumer electronics, surged more than 13 percent, its biggest gain in nearly a decade. Founder and former chairman Richard Schulze offered to take the company private at $24 to $26 per share, with the assistance of Credit Suisse (NYSE:CS). Last week, shares closed at $17.64. If completed, the deal could be the biggest leveraged buyout of the year, totaling more than $8 billion. However, some analysts are skeptical that the deal will close.
Anthony Chukumba, analyst at BB&T Capital Markets explained, “It is a different conversation if it is at least $30 a share and you have got your equity financing lined up and you have got your debt financing lined up. That is where shareholders, I think, might say ‘You know what, let’s just take the money and run.’” Schulze’s offer comes less than three months after he was forced out as chairman, due to not reporting allegations of personal misconduct. Prior to the buyout offer, shares of Best Buy had fallen 25 percent year-to-date. Even RadioShack (NYSE:RSH) shares, which have plummeted 75 percent this year, received a modest boost on Monday.
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While Best Buy rebounded and was the top performer in S&P 500 ahead of First Solar (NASDAQ:FSLR), the big box retailer still faces major fundamental headwinds. Other retailers such as Amazon (NASDAQ:AMZN) and Walmart (NYSE:WMT) have easily been outperforming, as consumers seek discount and value. Late Monday, Standard & Poor’s rating agency downgraded Best Buy’s credit rating to junk status. The agency explained the buyout offer would add a significant amount of debt to Best Buy’s balance sheet.
Going forward, investors should keep in mind that buyout chatter can fall apart as easily as it begins. Best Buy shares may have received a pleasant surge on Monday, but the lack of hard evidence in the buyout offer may quickly erode the gain. “While a deal may be able to get done at these levels, it gives us pause that no private equity firm was disclosed in the letter and no other known equity financing is secured at this point,” Peter Keith, an analyst at Piper Jaffray explained, according to Bloomberg. He rates Best Buy as Neutral and believes Schulze may need to raise $3.5 billion to $4 billion from private-equity firms to complete the deal.
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