1

Best Buy Co., Inc. Strategic Opportunities

Discussion Materials | February 21, 2014

2

LSP Capital Partners

Clayton R. Stoker Indiana University, Kelley School of Business,

2017 Majors: Accounting & Finance

Jacob J. Pechukas Indiana University, Kelley School of Business,

2017 Majors: Accounting & Finance

Robert J. Liu Indiana University, Kelley School of Business,

2017 Majors: Accounting, Finance & Mathematics

3

Table of Contents

I. Executive Summary 4

II. Specialty Retail & Consumer Electronics Industry

6

III. Best Buy Overview 9

IV. Valuation Summary 12

V. Sale to Another Sponsor

16

VI. Appendix 23

4

I. Executive Summary

5

Executive Summary

LSP Capital Partners recommends that Best Buy’s shareholders and board agree to a buyout by a consortium of private equity firms

By going private, Best Buy will be able to fix its underlying problems without the pressure of immediate returns hanging above the company

Overview Best Buy is one of the last big box retailers with approximately 1,100 locations across America The company is currently in the process of making the transition from a traditional brick and mortar

electronics retailer into a diversified multiplatform vendor, but is running into issues competing against

low cost and online retailers due to a previously bloated infrastructure and a weak online presence

Current Positioning In the fourth quarter of 2013, Best Buy took market share at cost. Black Friday weekend sales were

satisfactory but were weakened due to weather and a late holiday season During the first few weeks in December Best Buy took huge hits due to irrational price competition

across the industry as a whole Online sales jumped 23.5% over the last year due to shifting consumer trends. Best Buy is poised to

capitalize on the trend of increasing online sales if it is able to improve its online presence and supply

chain

Strategic Alternatives Assessment Wall Street seems to believe that EPS is the best indicator of future success but Best Buy’s transformation

will take more than a few quarters, therefore LSP Capital Partners believes an LBO would allow Best Buy

to reorganize itself to better position itself for many years to come Given Best Buy’s cash generation capabilities, a transaction financed primarily through debt could

provide exceptional returns to its financial sponsors Shareholders wanting to exit this investment due to its recent earnings report may be motivated to

accept a takeover bid at premium to cut their losses

Recommendations The transaction will be structured with cash and debt Due to the transaction size, LSP Capital Partners suggests that a syndicate of private equity firms work

together to finance the buyout

6

II. Specialty Retail & Consumer Electronics Industry

7

Macroeconomic Landscape

50.0

55.0

60.0

65.0

70.0

75.0

80.0

85.0

90.0Consumer Sentiment Index

2009

-01-

01

2009

-07-

01

2010

-01-

01

2010

-07-

01

2011

-01-

01

2011

-07-

01

2012

-01-

01

2012

-07-

01

2013

-01-

01

2013

-07-

01

2014

-01-

01

5

6

7

8

9

10

11US Unemployment Rate

10-year treasury bonds rose to a 2.65%, a 2 week high, after Federal Reserve Chair Janet Yellen signaled that the Fed would continue to taper its bond buying program despite recent mediocre economic data

The increase in consumer confidence in the economy as a whole has been driving up retail sales and could lead to stronger spending as we progress through 2014

Consumer spending recorded its strongest gain in three years in the fourth quarter of 2013, but a decrease in January 2014 was most likely the result of cold weather or potentially a sign of limited consumer spending growth in the second half of 2014

Unemployment, the strongest driver of consumer spending has been steadily decreasing over the past four years, driving up spending but a reversal in the rate could weaken the economy and retail industry as a whole

Over the past year, banks are opening up lines of credit more freely to sub-prime borrowers in all areas but housing which can lead to short term spending increases and could provide a tailwind to retail sales

Macroeconomic trends have shown steady signs of improvement which bodes well for the industry as a whole, however a reversal could potentially cause issues in the future

Fear regarding the nation’s debt ceiling drove the index to a two year low

Source: Federal Reserve Bank of Saint Louis

Source: Federal Reserve Bank of Saint Louis

8

2007 2008 2009 2010 2011 2012 2013-1.00%

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

7.00%

3.40% 3.60%3.85%

4.30%4.65%

5.15%5.78%

Best Buy US E-commerce Sales as Percentage Of Total Sales

Source: BBY 10-K

2007 2008 2009 2010 2011 2012 20130.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

7.00%

3.40% 3.60%3.85%

4.30%4.65%

5.15%

5.78%

U.S. Retail E-commerce Sales as a Percentage of Total Sales

Source: Census Bureau of the Department of Commerce

CAGR:

7.86%

Consumer Electronics Growth in 2014 is expected to be modest but exceeding that of 2013 due to new growth drivers and product lines.

Drivers include but are not limited to: new video game consoles, video games, wearable, and smart TVs. Smartphones and tables expected to continue growing but at a lesser rate than previous years

China is continuing to see growth in consumer electronics as a product of the burgeoning middle class purchasing an increased amount of discretionary items such as electronics

Even price-conscious customers seek an acceptable level of customer service from knowledgeable employees, especially when purchasing big ticket items such as high-tech consumer electronics

Electronics retailers have began to outsource the production of TVs, MP3 players, and other products to low-cost Chinese manufacturers and then sell them under their own private label brand. This has allowed retailers to better compete with low cost competitors such as Wal-Mart

The United States consumer electronics market is forecasted to have a value of $121.8 billion by 2017, an increase of 32.9% since 2012

Specialty Retailers Brick and mortar retailers have began to notice increasing popularity of online sales and mobile and have began to

focus their strategy more on this growing trend Online sales as a percentage of total retail sales was 5.2% in 2012, and is expected to grow to 10-15% Increased competition from online and low cost competitors has forced Specialty Retailers to differentiate themselves

through services to attract customers from purchasing in store Social media has show increasing popularity among specialty retailers due to the opportunity for low-cost marketing

and promotion Retailers have began to seek new opportunities for growth overseas due to the saturated growth in the US retail

market

The United States consumer electronics market is forecast to have a value of $121.8 billion by 2017, an increase of 32.9% since 2012

Online sales are projected to rise at a CAGR of almost 9% between 2013 and 2017

Industry Outlook

9

III. Best Buy Overview

10

Overview Best Buy’s previous cost cutting has been effective, however not been fast enough to keep up with the streamlined

corporations such as Amazon and Wal-Mart Best Buy has poor customer loyalty, primarily due to the low quality of customer service and a lack of incentives to keep

coming back Large databases of customer information are not being used effectively to attract customers into the store E-commerce site is inefficient and confusing when compared to main competitors, AMZN and WMT Customer Loyalty Lack of integration of customer

databases is unacceptable info of consumer preferences and purchase history

Many Geek Squad users did not buy their product through BBY

Little to no rewards system in place; leaves customers feeling as if there is not a point to being loyal to BBY

Online Presence 70% of customers begin purchases online

(whether to buy or browse); does very little to track website traffic on per-customer basis

Website is confusing and inefficient and is where a majority of the market share is lost

Distribution BBY delivery time: 7 days AMZN delivery time: 2 days Stores are not being utilized as

distribution centers even though a majority of the stores have the items ordered in-stock

Weak supply chain makes the cost of open box returns extremely high

1/2/2013 4/2/2013 7/2/2013 10/2/2013 1/2/20140

5

10

15

20

25

30

35

40

45

50

BBY Closing Prices

Clo

sin

g P

rice (

in d

ollars

)

Challenges Facing Best Buy

Poor customer retention, a weak online presence, and an inefficient distribution network are the three top challenges plaguing Best Buy

Source: Bloomberg

11

Current Opportunities International Sector: India and China Partnerships with “enemies” of Amazon, such as Google, which would help improve service/distribution Partnerships with vendors could potentially limit the supply of consumer products, especially electronics, and eliminate price

competitiveness between BBY and WMT & AMZN Current Growth Drivers

Rate of cost reductions in restructuring supply chains for returns and delivery, having marketing on the same page as

merchandising, and merchandising by seasonal drivers High market shares show that customers value BBY products and services Vendor partnerships: BBY is final brick and mortar store for consumer electronics

Bottom Line Improve customer retention via improved service, website, and stronger integration of customer databases Establish partnerships to better control market and improve distribution Continue cost cutting efforts by eliminating bloated infrastructure

2011 2012 2013 2014 2015 2016 20178000

9000

10000

11000

12000

13000

14000Gross Profit

Year

Gro

ss P

rofit

(in m

illions)

Assuming BBY makes changes to the problems they currently face, they can foresee moderate growth in the future – however the company will have to suffer through losses in order to fully fix the issues

73.96%

11.39%

10.69%

3.49% 0.47%

Percentage of Sales by Region

United States Europe Canada

China Other

Opportunities and Growth Drivers

Source: Credit Suisse Equity Research Report

Source: Best Buy 10-Q

12

IV. Valuation Summary

13

Best Buy Co., Inc. Valuation Summary

$4,000 $6,000 $8,000 $10,000 $12,000 $14,000 $16,000

Comparable Companies Analysis:Implied EV/EBITDA of 4.0x-5.0x

Discounted Cash Flow Analysis:Implied EV/EBITDA of 3.5x-4.5x

Leveraged Buyout Analysis:Implied EV/EBITDA of 3.8x-4.3x

$9,376$7,865

$9,504 $11,880

$9,029 $10,217

Mean Valuation: $9,711Implied EV/EBITDA: 4.1x

By running four valuation models, a target of 4.1x LTM EBITDA multiple is derived as the mean

A 4.1x multiple results in a total purchase price of $9,711 million, using Best Buy’s LTM EBITDA

($ in millions, except for share price)

52 Week Trading Range:Implied EV/EBITDA of 2.1x-6.3x

$4,906 ($15.7

5)

$14,909

($44.66)

Current Valuation: $8,068Current Share Price: $24.89

14

Comparable Companies Analysis

% of

Closing 52 Wk Equity Enterprise EV/ Revenue EV/ EBITDA EBITDA EBIT

Company Name Ticker Price High Value Value LTM 2013A 2014E LTM 2013A 2014E Margin MarginBest Buy Co., Inc. BBY $25.0 56% $8,574 $8,075 0.2x 0.1x 0.2x 3.4x 2.5x 3.7x 5.3% 3.6%

Staples Inc. SPLS $13.1 76% $8,517 $9,108 0.4x 0.4x 0.4x 4.9x 4.8x 5.0x 7.8% 5.9%Williams-Sonoma Inc. WSM $54.6 89% $5,184 $5,059 1.2x 1.0x 1.1x 8.5x 7.0x 7.5x 13.7% 10.3%Dixons Retail PLC DXNS $48.4 91% $2,878 $2,623 0.2x 0.1x 0.2x 5.2x 3.3x 5.2x 3.9% 2.2%Gamestop Corp. GME $36.1 63% $4,124 $3,475 0.4x 0.3x 0.3x 3.7x 3.0x 3.8x 10.5% 7.1%Office Depot Inc. ODP $5.2 85% $2,708 $2,682 0.3x 0.1x 2.0x 10.6x 5.4x 5.0x 2.4% 0.5%

High $8,574 $9,108 1.2x 1.0x 2.0x 10.6x 7.0x 7.5x 13.7% 10.3%Low $2,708 $2,623 0.2x 0.1x 0.2x 3.4x 2.5x 3.7x 2.4% 0.5%Mean $5,331 $5,170 0.4x 0.3x 0.7x 6.1x 4.3x 5.0x 7.3% 4.9%Median $4,654 $4,267 0.3x 0.2x 0.4x 5.0x 4.1x 5.0x 6.6% 4.7%

Target Corp. TGT $56.4 77% $35,435 $49,516 0.7x 0.8x 0.7x 7.4x 7.7x 7.3x 9.1% 6.1%Wal-Mart Stores Inc. WMT $75.3 93% $245,239 $303,454 0.6x 0.6x 0.6x 8.2x 8.0x 7.6x 7.8% 5.9%Amazon.com Inc. AMZN $353.7 87% $164,118 $154,862 2.1x 1.9x 1.7x 38.7x 44.4x 23.1x 5.4% 1.0%

High $245,239 $303,454 2.1x 1.9x 2.0x 38.7x 44.4x 23.1x 13.7% 10.3%Low $2,708 $2,623 0.2x 0.1x 0.2x 3.4x 2.5x 3.7x 2.4% 0.5%Mean $52,975 $59,873 0.7x 0.6x 0.8x 10.1x 9.6x 7.6x 7.3% 4.7%Median $8,517 $8,075 0.4x 0.4x 0.6x 7.4x 5.4x 5.2x 7.8% 5.9%

Revenue Metric Multiple RangeImplied Enterprise

ValueLTM $44,753 0.25x-0.30x $11,188 - $13,4262013A $49,621 0.15x-0.20x $7,443 - $9,9242014E $42,659 0.35x-0.40x $14,931 - $17,064

EBITDA Metric Multiple RangeImplied Enterprise

ValueLTM $2,376 4.0x-5.0x $9,504 - $11,8802013A $2,402 3.1x-4.1x $7,446 - $9,8482014E $2,072 4.0x-5.0x $8,288 - $10,360

15

Best Buy Co., Inc., Discounted Cash Flow Analysis

Financial Assumptions

Tax Rate 40.0% Net Debt (mm) ($501.0) Shares (mm) 348.9

Historical Period CAGR Projection Period CAGR

2011A 2012A ('10-'12) 2013 2014E 2015E 2016E 2017E 2013-2017

Sales/Revenue $49,747.0 $50,705.0 1.0% $42,708.8 $43,776.5 $44,871.0 $45,992.7 $47,142.5 2.5%Revenue Growth N/A 1.9% (15.8%) 2.5% 2.5% 2.5% 2.5%

Less: COGS (excluding D&A) 36,229.0 37,035.0 33,163.4 32,832.4 33,653.2 34,494.5 35,356.9% Sales 72.8% 73.0% 77.7% 75.0% 75.0% 75.0% 75.0%

Gross Profit 13518.0 13670.0 0.6% 9545.4 10944.1 11217.7 11498.2 11785.6% Margin 27.2% 27.0% 22.4% 25.0% 25.0% 25.0% 25.0%

Selling, General, & Administrative 10,029.0 10,242.0 7,687.6 8,755.3 8,974.2 9,198.5 9,428.5% Sales 20.2% 20.2% 18.0% 20.0% 20.0% 20.0% 20.0%

EBITDA 3,489.0 3,428.0 (0.9%) 1,857.8 2,188.8 2,243.5 2,299.6 2,357.1 6.1%

% Margin 7.0% 6.8% 4.4% 5.0% 5.0% 5.0% 5.0%

Less: D&A (968.0) (1,078.0) (667.5) (750.00) (750.00) (750.00) (750.00) D&A as a % of Capital Expenditures 130.1% 140.7% 89.0% 100.0% 100.0% 100.0% 100.0%

EBIT $2,521.0 $2,350.0 (3.5%) $1,190.3 $1,438.8 $1,493.5 $1,549.6 $1,607.1 7.8%

Less: Provision for Taxes (779.0) (709.0) (476.1) (575.5) (597.4) (619.9) (642.9)EBIAT $1,742.0 $1,641.0 (2.9%) $714.2 $863.3 $896.1 $929.8 $964.3 7.8%

Plus: D&A 968.0 1,078.0 667.5 750.0 750.0 750.0 750.0Less: Capital Expenditures (744.0) (766.0) (750.0) (750.0) (750.0) (750.0) (750.0)Less: Increase in Net Working Capital (222.0) 368.0 (100.0) (200.0) (200.0) (200.0) (200.0)Unlevered Free Cash Flow $1,744.0 $2,321.0 $531.7 $663.3 $696.1 $729.8 $764.3 9.5%

Total Enterprise Value

Terminal EBITDA Multiple

3.5x 4.0x 4.5x

Discount 7.6% $8,420.1 $9,237.2 $10,054.4

Rate 8.6% 8,087.5 8,867.7 9,647.9

(WACC) 9.6% 7,771.9 8,517.1 9,262.3

Total Price Per Share

Terminal EBITDA Multiple

3.5x 4.0x 4.5x

Discount 7.6% $25.57 $27.91 $30.25

Rate 8.6% 24.62 26.85 29.09

(WACC) 9.6% 23.71 25.85 27.98

16

V. Sale to Another Sponsor

17

Leveraged Buyout Analysis: Overview

$250.0 Minimum cash level2.50x Senior debt / EBITDA1.50x Subordinated debt / EBITDA

IRR ReturnsEBITDA exit multiple 2017 2018 2019

3.8x 16.1% 19.0% 20.0%4.3x 26.7% 25.7% 24.7%4.8x 35.9% 31.6% 28.7%

Sources Amount PercentCash $1,920.0 15.9%Senior debt 4,644.6 38.4%Subordinated debt 2,786.8 23.0%Sponsor's equity 2,751.3 22.7%Total sources $12,102.6 100.0%

Uses Amount PercentPurchase of equity $10,374.9 85.7%Refinancing of existing debt 1,624.0 13.4%Transaction expenses 103.7 1.0%Total uses $12,102.6 100.1%

Transaction Multiples Pro FormaTransaction Value / Sales 0.23xTransaction Value / EBITDA 5.3xTransaction Value / EBIT 8.3x

Transaction AssumptionsCurrent Share Price $24.8 Offer Price Premium 20.0%Offer Price Per Share $29.7 Target Diluted Shares Outstanding 348.9 Offer Value $10,374.9

+ Long-Term Debt (Including CPLTD) 1,624.0 + Preferred 0.0 + Minority Interest 2.0 - Cash & Equivalents (2,170.0)

Transaction Value $9,830.9

18

Leveraged Buyout Analysis: Cash Flow and Returns Analysis

Returns Analysis - EBITDA Exit Multiple Method

Initial investment: $2,751.3 Projected Years2014 2015 2016 2017 2018 2019 2020 2021

EBITDA $2,242.2 $2,354.3 $2,472.0 $2,595.6 $2,725.4 $2,861.7 $3,004.8 $3,155.0

Implied enterprise value @ EBITDA multiple of:3.8x $8,520.4 $8,946.4 $9,393.8 $9,863.4 $10,356.6 $10,874.4 $11,418.2 $11,989.14.3x $9,641.5 $10,123.6 $10,629.8 $11,161.3 $11,719.3 $12,305.3 $12,920.6 $13,566.64.8x $10,762.6 $11,300.8 $11,865.8 $12,459.1 $13,082.0 $13,736.1 $14,422.9 $15,144.1

LESS: Debt $7,431.33 $6,975.39 $6,437.26 $5,811.05 $5,090.46 $4,268.88 $3,339.27 $2,291.92PLUS: Cash 250.0 250.0 250.0 250.0 250.0 250.0 250.0 250.0

Implied equity value @ EBITDA multiple of:3.8x $1,339.1 $2,221.0 $3,206.5 $4,302.4 $5,516.1 $6,855.6 $8,328.9 $9,947.24.3x $2,460.2 $3,398.2 $4,442.5 $5,600.2 $6,878.9 $8,286.4 $9,831.3 $11,524.74.8x $3,581.3 $4,575.4 $5,678.5 $6,898.0 $8,241.6 $9,717.3 $11,333.7 $13,102.2

Equity return @ EBITDA multiple of:3.8x (19.3%) 8.0% 16.1% 19.0% 20.0% 20.3% 20.2%4.3x 23.5% 27.1% 26.7% 25.7% 24.7% 23.6% 22.7%4.8x 66.3% 43.7% 35.9% 31.6% 28.7% 26.6% 25.0%

Projected Years2014 2015 2016 2017 2018 2019 2020 2021

Free cash flow for debt paydown $455.9 $538.1 $626.2 $720.6 $821.6 $929.6 $1,047.3 $1,178.4

Scheduled (paydown) / borrowings 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0Cash flow available for debt sweep 455.9 538.1 626.2 720.6 821.6 929.6 1,047.3 1,178.4

Discretionary (paydown) / borrowings (455.9) (538.1) (626.2) (720.6) (821.6) (929.6) (1,047.3) (1,178.4)Excess cash flow $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0

19

Leveraged Buyout Analysis: Debt and Credit Analysis

IRR Returns2017 2018 2019

26.7% 25.7% 24.7%12.0% 39.7% 35.3% 32.2%14.0% 36.0% 32.6% 30.1%16.0% 32.6% 30.1% 28.1%

Offer price 18.0% 29.5% 27.8% 26.3%premium 20.0% 26.7% 25.7% 24.7%

22.0% 24.2% 23.8% 23.1%24.0% 21.8% 22.0% 21.7%26.0% 19.6% 20.4% 20.4%28.0% 17.5% 18.8% 19.2%

Credit Statistics Pro Forma 2014 2015

Debt / EBITDA 4.0x 3.1x 2.7xEBITDA / Interest (net) 1.6x 1.5x 1.5x

Debt Repayment Year 3 Year 4 Year 5

Cumulative free cash flow $1,620.3 $2,340.9 $3,162.5Delevering - Senior debt 34.9% 50.4% 68.1%Delevering - Total debt 21.8% 31.5% 42.6%

20

LSP Capital Partners views these eight private equity firms as the most capable to lever BBY

All firms listed have had prior investments dealing with: distribution, information technologies, and/or consumer retail

The most efficient way to lever BBY would be a consortium of two to three firms listed, consisting of at least one top tier firms listed at the uppermost table

Total Assets

(M)$6,925.00 $5,000.00 $2,000.00 $8,000.00

Typical

IndustiesDistribution and Retail

Business Services,

Consumer Goods and

Services, Tech

Distribution

Consumer Goods and

Services,

Communications,

Agriculture, Chemicals,

Previous

InvestmentsB&M Retail, David's Bridal

Lytx, ECI Software

Solutions, CSSN

Checkers Drive-In

Resurants Inc.

Oreck Corporation,

Caribbean Reasturants

Inc., El Pollo Loco

Total Assets

(M)$66,000.00 $48,000.00 $40,370.00 $31,567.00

Typical

IndustriesRetail, Consumer

Consumer/ Retail,

Media, Telecom,

Industrials

Chemicals,

Consumer

Products, Retail,

Tech

Consumer and Retail,

automotive, real estate

Previous

InvestmentsStaples

Neiman Marcus,

Petco, Paradyne

Del Monte, The

Nielsen Company

B.V., Toys R Us

The Nielsen Company

B.V.

Potential Financial Sponsors

21

Online Retailers

Low-cost Retailers

Consumer

Electronics Trends

• Online retailers such as Newegg and Amazon are service-oriented online retailers with highly integrated information systems regarding their customers

• Majority of BBY’s market share is lost to online retailers• A standardized internet sales tax would hurt Best Buy’s current efforts in upgrading their e-

commerce site more so than its competitors who already hold much of the online market segment and would cause drastic changes to their marketing and merchandising efforts

• Low-cost retailers like Wal-Mart compete with large retailers because of their extremely low prices

• In order to reduce price competitiveness, Best Buy would need to form strong partnerships with its vendors to help limit the supply going to other retailers

• Wal-Mart is run and founded on a low-cost business model – a company like Best Buy trying to compete with them based on the price would only cause them to lose potential profits

• Saturated growth in tablet and smartphone markets – likely to see growth and adoption rates decline

• Best Buy’s private label brand may be outperformed by other brands• Transition from premium smartphones and tablets to low-margin substitutes• Weak macroeconomic environment forcing consumers to cut back heavily on spending for

discretionary items

Best Buy, although has many internal changes to make, has been put in their current situation because of external factors

Once Best Buy fixes itself internally, in terms of service and operations, these risks will still remain to Best Buy and other similar retailers

2011 2012 20130.00%

20.00%

40.00%

60.00%

80.00%

100.00%

Percentage of Cell Phones by Operating System

WindowsBlackBerryAndroidApple

CAGR: 16.17%Although trends show that smartphone adoption was very rapid, soon it will begin to slow as the consumer market begins to saturate

Key Risks of the Business

Source: Pew Research Center

22

A strategic M&A would not allow Best Buy to fix its main operational problems which have caused the gross profit to decline the past few years. Due to its size, there may be no interest in a merger or acquisition especially with the trend of decreased transaction size shown on the graph to the right. It is very unlikely that Best Buy would benefit from any Synergies as no potential buyers would help solve Best Buy’s internal operational issues outlined below.

Service Changes Increase customer loyalty by focusing more on customer service, both

in-store and on-line Initiate rewards programs which will increase customer retention and

create barriers for companies such as Amazon and Wal-Mart to acquire customers from Best Buy’s market share

Restructure website to make more user-friendly, track customer purchase and browsing history

Operational Changes Integrate all individual databases on customer information to better

tailor to the customer and purchasing drivers Speed up distribution

Turning stores from brick and mortar retailers to both retail stores and distribution centers to reach customers faster and further improve their customer relationships

Lack of vendor relationships which, in turn, increases price competitiveness in the market with major adversaries like Amazon and Wal-Mart

Dixons Retail is based out of Europe, where Best Buy is currently not even a top market share holder and is currently reducing operations in Europe.

HH Gregg, although has done very well in recent years, is still too small and would not have enough capital to acquire a large retailer such as Best Buy

Newegg is far to small to be able to acquire the needed capital to purchase Best Buy. Even though Newegg has a successful website, this would not solve Best Buys operational issues

2007 2008 2009 2010 2011 2012 20130

100

200

300

400

500

600

0

20000

40000

60000

80000

100000

120000

140000

160000

Global Retail M&A Activity

Number Of Deals Value Of Deals(US$m)

Strategic M&A Weaknesses

Source: Thomson One

23

VI. Appendix

24

Appendix A: Best Buy Co., Inc.,: Weighted Average Cost of Capital

WACC Calculation Comparable Companies Unlevered Beta

Target Capital Structure Market Market Debt/ Marginal Unlevered

Debt-to-Total Capitalization 16.3% Company Levered Beta Value of Debt Value of Equity Equity Tax Rate Beta

Equity-to-Total Capitalization 83.7% Best Buy Co, Inc 1.37 $1,669.0 $8,574.1 19.5% 40.0% 1.23

Staples Inc 1.29 1973.5 8,517.4 23.2% 35.0% 1.12 Cost of Debt Williams-Sonoma Inc 0.86 3.8 5,184.4 0.1% 35.0% 0.86

Cost of Debt 1.7% Dixons Retail Plc 1.04 546.7 2,878.2 19.0% 24.0% 0.91 Tax Rate 40.0% Gamestop Corporation 0.90 0.0 4,124.0 0.0% 35.0% 0.90

After-tax Cost of Debt 1.0% Office Depot Inc 1.52 495.2 2,708.3 18.3% 0.0% 1.29

Cost of Equity Average 1.12 12.1% 1.01

Risk-free Rate12.73% Median 1.04 18.3% 0.91

Market Risk Premium2 7.25%

Levered Beta 1.01 Best Buy Co., Inc. Relevered Beta

Cost of Equity 10.1% Mean Target Target

Unlevered Debt/ Marginal Relevered

Beta Equity Tax Rate Beta

WACC 8.6% Relevered Beta 0.91 19.5% 40.0% 1.01

1 Note: 10-year treasury rate, sourced from treasury.gov on 2/ 19/ 2014

2 Note: Obtained from Ibbotson SBI Valuation Yearbook

25

Appendix B: Leveraged Buyout Debt Payment Schedule

Senior debt

Beginning balance $4,644.6 $4,188.6 $3,650.5 $3,024.3 $2,303.7 $1,482.1 $552.5 $0.0Discretionary (paydown) / borrowings (455.9) (538.1) (626.2) (720.6) (821.6) (929.6) (552.5) 0.0

Ending balance $4,188.6 $3,650.5 $3,024.3 $2,303.7 $1,482.1 $552.5 $0.0 $0.0

Average balance $4,416.6 $3,919.6 $3,337.4 $2,664.0 $1,892.9 $1,017.3 $276.3 $0.0Interest rate 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0%

Interest expense $220.8 $196.0 $166.9 $133.2 $94.6 $50.9 $13.8 $0.0

Subordinated debt

Beginning balance $2,786.8 $2,786.8 $2,786.8 $2,786.8 $2,786.8 $2,786.8 $2,786.8 $2,291.9Scheduled (paydown) / borrowings 0.0 0.0 0.0 0.0 0.0 0.0 (494.8) (1,178.4)

Ending balance $2,786.8 $2,786.8 $2,786.8 $2,786.8 $2,786.8 $2,786.8 $2,291.9 $1,113.5

Average balance $2,786.8 $2,786.8 $2,786.8 $2,786.8 $2,786.8 $2,786.8 $2,539.3 $1,702.7Interest rate 6.5% 6.5% 6.5% 6.5% 6.5% 6.5% 6.5% 6.5%

Interest expense $181.1 $181.1 $181.1 $181.1 $181.1 $181.1 $165.1 $110.7

Cash

Beginning balance $250.0 $250.0 $250.0 $250.0 $250.0 $250.0 $250.0 $250.0PLUS: Excess cash flow 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Ending balance $250.0 $250.0 $250.0 $250.0 $250.0 $250.0 $250.0 $250.0

Average balance $250.0 $250.0 $250.0 $250.0 $250.0 $250.0 $250.0 $250.0Interest rate 1.2% 1.2% 1.2% 1.2% 1.2% 1.2% 1.2% 1.2%

Interest (income) ($3.0) ($3.0) ($3.0) ($3.0) ($3.0) ($3.0) ($3.0) ($3.0)

Interest Expense (net)

Senior Debt 220.8 196.0 166.9 133.2 94.6 50.9 13.8 0.0Subordinated Debt 181.1 181.1 181.1 181.1 181.1 181.1 165.1 110.7Cash (3.0) (3.0) (3.0) (3.0) (3.0) (3.0) (3.0) (3.0)

Interest expense (net) $399.0 $374.1 $345.0 $311.3 $272.8 $229.0 $175.9 $107.7

26

Appendix C: Best Buy Co., Inc., Discounted Cash Flow Analysis Sensitivities

Implied Perpetuity Growth Rate

Terminal EBITDA Multiple

3.5x 4.0x 4.5xDiscount 7.6% (1.5%) (0.5%) 0.4%

Rate 8.6% (0.6%) 0.5% 1.3%

(WACC) 9.6% 0.3% 1.4% 2.2%

Total Equity Value

Terminal EBITDA Multiple

3.5x 4.0x 4.5xDiscount 7.6% $8,921.1 $9,738.2 $10,555.4

Rate 8.6% 8,588.5 9,368.7 10,148.9

(WACC) 9.6% 8,272.9 9,018.1 9,763.3

Total Enterprise Value

Terminal Perpetuity Growth Rate2.0% 2.5% 3.0%

Discount 7.6% $12,351.8 $13,350.0 $14,565.2

Rate 8.6% 10,445.2 11,127.6 11,931.8

(WACC) 9.6% 9,041.2 9,532.0 10,097.2

Total Equity Value

Terminal Perpetuity Growth Rate2.0% 2.5% 3.0%

Discount 7.6% $12,852.8 $13,851.0 $15,066.2

Rate 8.6% 10,946.2 11,628.6 12,432.8

(WACC) 9.6% 9,542.2 10,033.0 10,598.2

Implied Terminal EBITDA Multiple

Terminal Perpetuity Growth Rate2.0% 2.5% 3.0%

Discount 7.6% 5.9x 6.5x 7.3x

Rate 8.6% 5.0x 5.4x 6.0x

(WACC) 9.6% 4.4x 4.7x 5.1x

Total Price Per Share

Terminal Perpetuity Growth Rate2.0% 2.5% 3.0%

Discount 7.6% $36.84 $39.70 $43.18

Rate 8.6% 31.37 33.33 35.63

(WACC) 9.6% 27.35 28.76 30.38