Print | Share | Reprint

Best Buy, Carphone Warehouse end JV

by Laura Board in London | Published May 1, 2013 at 9:00 AM

Best Buy Co. and the U.K.'s Carphone Warehouse Group plc said Tuesday they would dissolve a five-year-old European retailing joint venture.

Carphone Warehouse will pay its partner a gross £500 million ($775 million) for its 50% stake in Best Buy Europe Distributions Ltd., the U.K. company's main asset, while Best Buy will pay the London group £29 million to settle other agreements including terminating the companies' "global connect" joint venture for mobile devices in China and Mexico.

Carphone Warehouse said it will pay £341 million of the net £471 million due to Best Buy on completion in June, and will also issue Best Buy with an £80 million stake in Carphone Warehouse at that time. The buyer will pay the final £50 million to the U.S. company on the first and second anniversaries of the deal's completion.

The deal comes just over 18 months after Best Buy spent $1.3 billion to buy Carphone Warehouse out of a joint venture covering Best Buy Mobile in the U.S. and Canada. At the time the companies scaled back their European business, announcing the closure of 11 pilot warehouse-style electronics stores in the U.K. to concentrate on their 2,500 small outlets in Western Europe. Tuesday's deal pre-empts call options built into that November 2011 agreement covering Best Buy Europe that were exercisable from March 2015.

"Carphone Warehouse and Best Buy have enjoyed a great relationship over the last five years ensuring that we shared and enjoyed many aspects of each other's business attributes," Carphone Warehouse CEO Roger Taylor said. "However, following the sale of our U.S. interest last year, we have become increasingly responsible for the day-to-day operations of CPW Europe whilst conversely Best Buy have become more focused on their wholly owned businesses. As a result, both parties have agreed that this is a good time for us to bring the joint venture to an end, whilst ensuring that our relationship remains in place by way of our global buying alliance."

Best Buy, of Richfield, Minn., said it will report the Best Buy Europe joint venture as a discontinued operation and write down $200 million related to foreign currency translation losses.

"After reviewing the business and spending time with our partners, we concluded that the timing and economics were right to enter into this agreement with CPW," Best Buy president and CEO Hubert Joly said in a statement. He said the deal will simplify Best Buy's business, improve its return on invested capital and strengthen its balance sheet.

Carphone Warehouse said the purchase will be earnings enhancing in the current year. Carphone Warehouse will help fund the acquisition through a placing of more than 47.2 million shares, equivalent to 9.99% of its existing share capital.

The scale of the acquisition means it is classified as a reverse takeover under U.K. listing rules. Directors owning 31% of Carphone Warehouse's shares plan to vote in favor of the deal.

Carphone Warehouse, which is about 29% owned by founder and chairman Charles Dunstone, hopes the purchase will enable it to enter the premium segment of the Official List on the London Stock Exchange.

Best Buy Europe has 2,377 stores. It had revenue of £3.3 billion in the year ended March and Ebit of £135 million, Carphone Warehouse said. The unit's same-store sales rose 6.5% in the first quarter. Carphone Warehouse also owns 46% of Virgin Mobile France.

Carphone Warehouse's shares by midmorning on Tuesday were up almost 17%, at 237.50 pence, valuing its equity at £1.1 billion. Best Buy's equity was worth $8.2 billion as of Monday's close, after its shares rose almost 3% to close at $24.20.

Best Buy has agreed to a 12-month lockup on the Carphone Warehouse shares it will receive, with provision for Carphone Warehouse to place the shares above the issue price during that period and pocket the difference. Credit Suisse Securities (Europe) Ltd.'s James Leigh-Pemberton and Neil Pizey are its advisers.

Best Buy declined to disclose its advisers.

Share:

Restructuring

Best Buy, Carphone Warehouse end JV

Free preview

Meet the journalists

Laura Board

International Editor

Movers & Shakers

Video

Coming back for more

Sectors