Best Buy exits Europe with Carphone sale

Tue Apr 30, 2013 11:50am EDT
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By Dhanya Skariachan and Paul Sandle

NEW YORK/LONDON (Reuters) - U.S. retailer Best Buy Co Inc (BBY.N: Quote) retreated from an ill-timed European expansion on Tuesday by selling its stake in a joint venture to Carphone Warehouse Group CPW.L for less than half of what it paid five years ago.

The 500 million pounds ($775 million) sale is the latest sign the world's largest consumer electronics chain is scaling back overseas ambitions to focus on its mainstay U.S. business, which faces cut-throat competition from the likes of Wal-Mart Stores Inc (WMT.N: Quote) and Inc (AMZN.O: Quote).

"The sale allows management to eliminate the European distraction, as it has been a much-debated topic in the investment community for some time," JP Morgan analyst Christopher Horvers said. "It also fully unwinds an ill-timed conquest into Europe."

The move, which will boost Best Buy's cash levels, could be a precursor to Best Buy resuming its share repurchase program, which it had put on ice last year, when results fell off the cliff, said BB&T Capital Markets analyst Anthony Chukumba.

Best Buy shares touched a year-high of $26.86 on Tuesday, while Carphone shares rose 17.8 percent at an all-time high of 240 pence.

The deal will strengthen Best Buy's balance sheet, simplify its business and improve its return on invested capital, CEO Hubert Joly said in a statement, adding that the timing and economics felt right for the deal.

But allowing for currency fluctuations, the price is less than half the roughly $2.1 billion Best Buy paid in 2008 for 50 percent of the independent mobile seller's retail operations.

"(Best Buy) basically paid 1.1 billion (pounds) for the same half they are selling back to us today for a lot less," said Carphone Chief Executive Roger Taylor. "When they bought in, they had aspirations to put Best Buy stores across Europe, and they probably paid a premium for that, and in the end that strategy didn't work for many reasons."   Continued...

A Carphone Warehouse sign hangs outside a branch in west London May 8, 2009. REUTERS/Toby Melville