updated 09:11 am EDT, Tue April 30, 2013
Exchange of ownership for $774 million in cash, stock, to help simplify business
Electronics retailer Best Buy is selling its stake in Carphone Warehouse Group to co-owner Carphone Warehouse, in its continued efforts to financially turn itself around. The sale, which sees Best Buy exchange its holdings in the European entity for £500 million ($774 million) in cash and stock according to a statement, effectively ends Best Buy's faltering expansion into the continent.
The £500 million consists of £420 million ($650 million) in cash and £80 million ($124 million) of stock in Carphone Warehouse itself, with the stock locked up for 12 months and then sold at or above the issue price, with additional proceeds being kept by Carphone Warehouse. If the shares end up below the value, Carphone Warehouse will pay Best Buy any deficiency. Best Buy originally paid around $2.15 billion towards the venture.
The joint operation was set up by the two companies in 2008, with the plan of building Best Buy-style stores across Europe. The company closed its relatively few UK stores in 2011, after competition from long-standing chains caused Best Buy to not gain enough traction to survive. According to the Wall Street Journal, revenue from Carphone Warehouse's other 2,500 stores in eight countries is estimated to be around $5.5 billion for the year. Best Buy will be applying a noncash charge to its finances of around $200 million for its exit, and will also be paying Carphone Warehouse $45 million to end another mobile phone store venture.
Hubert Joly, Best Buy CEO, called the transaction a chance to "simplify our business, substantially improve our return on invested capital, and strengthen our balance sheet." It is claimed that the move from Europe "does not suggest any similar action in our other international businesses" in Mexico, China, and Canada.