Best Buy paying 1.1 billion pounds for half interest in Carphone Warehouse retail operations

Best Buy Co. Inc., the biggest U.S. electronics retailer, is paying 1.1 billion pounds (US$2.1 billion 1.4 billion) to take a 50 percent stake in the European retail operation of The Carphone Warehouse, the companies announced Thursday.

The newly formed joint venture will include The Carphone Warehouse's retail business of more than 2,400 stores in nine European countries, and The Carphone Warehouse's share of its existing relationships with Best Buy, based in Richfield, Minnesota.

The joint venture also includes the web and direct businesses of The Carphone Warehouse, the insurance operations, and its airtime reselling businesses. The Carphone Warehouse's current European retail management team initially will remain in place, the companies said.

The Carphone Warehouse will continue as sole owner of its fixed line telecoms business in the United Kingdom, which includes TalkTalk, AOL Broadband and Opal; and its share of the Virgin Mobile France joint venture.

U.K.-based Carphone Warehouse said it would use the proceeds to pay down debt, invest in broadband customer growth, infrastructure and other areas.

Carphone Warehouse shares were down 2.4 percent at 292 pence (US$5.73 3.71) on the London Stock Exchange.

Collins Stewart analyst Mark James retained his buy recommendation on the company, saying the price of the deal gave an implied valuation of 2.2 billion pounds (US$4.3 billion; 2.8 billion), ahead of the brokerage's 1.9 billion pound (US$3.7 billion; 2.4 billion) valuation.

However, JP Morgan lowered The Carphone Warehouse to neutral from overweight, citing limited "share price upside on a 3-6 month view." It said the Best Buy deal raised several concerns, such as "the rationale of investing in consumer electronics retailing, the potential use of proceeds, and the impact on the company's financials."

Charles Dunstone, chief executive officer of The Carphone Warehouse, said the companies had been working together for two years.

"It is clear that we have very complementary cultures, skills and assets _ it's a perfect match," Dunstone said. "It is also clear that we have a significant opportunity for incremental growth in our retail business which we can best realize with Best Buy on board."

The two companies worked on developing Best Buy Mobile, and have been collaborating to bring Geek Squad, a 24-hour computer support task force, to European markets.

"We believe our combined expertise has potential to result in significant financial upside as we together attempt to transform retail in Europe through the Carphone Warehouse, Phone House and Best Buy brands," said Brian Dunn, president and chief operating officer.

The deal is subject to approval by Carphone Warehouse shareholders at the annual general meeting in August.

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On the Net:

Carphone Warehouse, http://www.cpwplc.com/phoenix.zhtml?c123964&pirol-home

Best Buy, http://www.bestbuy.com/site/olspage.jsp?idcat12114&typepage