Best Buy to Acquire Carphone JV Stake for $1.3B, Close 11 Stores in UK

Retailer Best Buy Inc. said it would buy Carphone Warehouse's stake in their U.S. mobile phone joint venture for about $1.3 billion and plans to close 11 big box stores in the UK as part of its reorganization strategy.

The $1.3 billion deal, which is expected to be accretive to fiscal 2013 earnings, would allow Best Buy to capture the full profit potential and growth in all connectivity offerings and related products and accessories sold in Best Buy stores and online in the U.S. and Canada.

In 2008, Best Buy and Carphone Warehouse Group plc (CPW) formed a JV venture in Europe, which opened 11 big box stores in the UK in April 2010. Based on challenging economic conditions and profit expectations of these stores, Best Buy is shutting down 11 of these stores effective at the end of the calendar year.

The company would record about $2.6 billion in charges in fiscal 2012, including a $1.3 billion consideration for Carphone stake and a $1.2 billion write-down for goodwill impairment. The purchase of Carphone's interest and planned closure of the UK big box stores are expected to save Best Buy $180 million to $210 million, or about 35 cents to 40 cents a share, in fiscal 2013.

Excluding charges, the Carphone stake acquisition would add five cents a share to fiscal 2012 earnings. The deal would be accretive to Best Buy's fiscal 2013 earnings, by 24 to 27 cents a share.

Best Buy would also incur pre-tax charge of $140 to $150 million in the second half of fiscal 2012 regarding the closure of 11 stores in the UK that is expected to save $60 million to $70 million, or 11 to 13 cents a share, in fiscal 2013.

Best Buy intends to pay to Carphone £5 million per year for up to five years for ongoing management consulting services with respect to its U.S. and Canadian Best Buy Mobile businesses.

In addition, the company has acquired mindSHIFT Technologies for about $167 million to expand its services business. mindSHIFT, which provides cloud services, data center services and professional services to more than 5,400 clients, gives Best Buy an immediate, robust capability to capitalize on the highly attractive and underserved small and mid-sized business space worth $40 billion.

Best Buy and CPW are also announcing the creation of a new global mobile and connectivity venture called Global Connect under which the companies would partner with third parties to improve the performance of their connected products and services business.

Best Buy and CPW expect these partnerships to require little or no capital investments, instead providing world-leading consulting expertise and connectivity talent in return for a share in profits.

In addition, the Global Connect venture will provide expertise to Best Buy's existing operations in China and Mexico by leveraging the Best Buy Mobile model. The companies are in discussions with a number of potential partners in other parts of the world.

Best Buy believes that there is a significant untapped opportunity as connections migrate from phones to other connectable devices such as tablets, laptops, TVs and eReaders. This transaction will enable Best Buy Mobile to accelerate the deployment of operational and connectivity expertise to these devices and for Best Buy to fully capture the profit potential of these opportunities, said the company in a statement.

Best Buy also changed to its fiscal year, starting with fiscal 2013. Beginning in fiscal 2013, Best Buy's new fiscal year will end on the Saturday nearest to January end, rather than the Saturday nearest to the end of February under the existing fiscal calendar. This change will not impact the fiscal 2012 reporting.

Shares of Minnesota-based Best Buy were down 2 cents to $27.29 in the pre-market trading on Monday. They closed Friday's regular trading session at $27.31 on the NYSE.