The consumer electronics company, which owns mobile phone retailer Carphone Warehouse, said on Sunday that it had shown "great flexibility", offering Schulze a proposal that would have given him 60 days to put together a deal for the company and the opportunity to take a buyout offer directly to shareholders from January.

"Mr. Schulze did not accept the company proposal," it said in a statement.

A source familiar with the situation said that Schulze and his team were "shocked" by the Best Buy statement because they thought they were still in talks over an agreement on due diligence.

"I am disappointed and surprised by the Best Buy board's abrupt termination of our discussions," Schulze said in a statement released early on Monday.

Meanwhile, Best Buy has selected Hubert Joly, former head of privately held hospitality and travel company Carlson, to replace interim chief executive Mike Mikan, the Wall Street Journal said on Monday.

Schulze, the 71-year-old former chairman of Best Buy, said in a letter to the board this month that he was interested in teaming up with private equity partners to buy the company for $24 to $26 per share.

However, he noted obstacles to making an official bid, which included a provision of Minnesota law that would prevent him from bringing in private equity firms and his inability to access the company's financial data.

HIGHLY CONDITIONAL

Best Buy said that the board's offer would have given Schulze a waiver of Minnesota law so that he could develop a definitive proposal.

It said that it asked Schulze to agree to "certain protections for Best Buy and its shareholders, with the goal of limiting outside distractions", in exchange for opening its books. It did not detail the conditions.

The retailer has previously called Schulze's proposal "highly conditional" and asked him to name his still undisclosed private equity partners.

Schulze, who owns about a fifth of Best Buy's shares, has said that he plans to fund a deal through a combination of investments from private equity firms, debt financing and the reinvestment of about $1 billion of his own equity.

Last week Schulze sent the company's board a second letter saying that he would be persistent in stalking Best Buy.

"I still hope to work with the board on a mutually beneficial transaction - but you should know that I am not going away," he wrote.

Schulze resigned from the company's board in June and said he was exploring options for his ownership stake. He lost the chairmanship after an investigation by a board committee found that he had failed to tell the board about allegations of personal misconduct by former CEO Brian Dunn.

Best Buy has been closing stores, cutting jobs and trying out a new store format to improve business. It has faced criticism for being too slow to react to a changing retail environment in which many consumers use Best Buy as a "showroom" to try out gadgets before buying them online or elsewhere for less.

Best Buy shares closed on Friday at $20.27.

(Additional reporting by Siddharth Cavale in Bangalore; Editing by David Goodman)

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