* To buy Carphone out of Best Buy Mobile for $1.3 bln
* To close Best Buy-branded UK megastores
* To create mobile venture for emerging market expansion
* Carphone to return cash to shareholders
* Carphone shares close up 0.9 pct, Best Buy down 3.3 pct
By Mark Potter and Dhanya Skariachan
LONDON/NEW YORK, Nov 7 Top U.S. electronics
chain Best Buy Co is buying its British partner out of
a fast-growing U.S. mobile phone joint venture for $1.3 billion
and scrapping plans for a chain of European megastores.
The moves are the latest sign Best Buy is scaling back its
overseas ambitions to focus on its main U.S. business, which
faces stiff competition from discounters and online retailers.
Earlier this year, the U.S. group dropped plans for Best
Buy-branded stores in China and Turkey.
The decisions also underscore the gloomy outlook for
European retailers as consumers there grapple with rising
prices, subdued wages growth and government austerity.
Best Buy said on Monday it would buy out Carphone Warehouse from their Best Buy Mobile venture in the United States
and Canada, which has benefited from soaring demand for
smartphones like Apple Inc's iPhone.
"For Best Buy to be able to no longer have to share 50
percent of the profits of a high-margin, fast-growing business
with Carphone Warehouse, from my perspective, is a real
positive," said BB&T Capital Markets analyst Anthony Chukumba.
"(But) it is not a game-changer. Best Buy still has the
same challenges they did 24 hours ago -- fairly weak product
cycle particularly in flat-panel TVs, increasing competition
from Amazon, probably too much retail square footage."
Best Buy shares were down 3.3 percent at $26.40 on Monday
afternoon, while Carphone shares closed up 0.9 percent at 348
pence on the London Stock Exchange.
The deal gives Best Buy more flexibility to use employees
in its U.S. mobile phone stores to sell more than just phones,
CEO Brian Dunn told Reuters in an interview.
"What this deal allows us to do now is to extend that out
across tablets, and notebooks and smart TVs and on and on and
e-readers and all the portfolio of goods we sell."
The deal will also help the brick-and-mortar retailer
differentiate itself from online-only chains such as Amazon.com by focusing more on customer service, Dunn said.
"This moves Best Buy more towards a service model," said
Larry Haverty, associate portfolio manager of Gabelli Global
Multimedia Trust, which owns shares of Best Buy. "They have
already been making moves towards that with Geek Squad."
Some were more skeptical. Analyst Brian Nagel of
Oppenheimer worried that the investments might compromise Best
Buy's ability to buy back shares in the near term.
On Monday, Best Buy also said it agreed to buy service
provider Mindshift Technologies for $167 million in a bid to
expand into the cloud services segment and cater to small and
A GOOD DEAL FOR CARPHONE?
Along with Best buy buying out Carphone's stake in the U.S.
venture, the two companies on Monday also announced a new
venture aimed at replicating Best Buy Mobile's success in
Barclays analysts said Carphone was getting a good price
for the U.S. stake, with the 838 million pound ($1.3 billion)
deal worth more than the entire equity valuation of the British
group when it was demerged from telecoms arm TalkTalk
Carphone said it would return proceeds from the deal to
investors, giving a big windfall to founder Charles Dunstone.
Dunstone, who owns about 29 percent of Carphone Warehouse
according to Reuters data, has been praised by investors for
striking his initial deal with Best Buy in 2008, shortly before
a plunge in equity market valuations.
Best Buy said taking full control of Best Buy Mobile and
closing British megastores would add 35-40 cents a share to
fiscal 2013 earnings. The one-off cost of both actions, plus a
noncash impairment to write down goodwill, was $2.6 billion.
Best Buy bought 50 percent of Carphone's retail operations
for about $2.1 billion in 2008 to tap the British firm's
expertise in mobile phones and to act as a springboard for
expansion across Europe.
While the U.S. mobile phone business has exceeded
expectations, the plans for a chain of European megastores have
been hit by weak consumer spending, low brand recognition and
competition from incumbent players such as Dixons .
Best Buy and Carphone also said on Monday said they would
close their 11 Best Buy-branded stores in Britain at a cost of
about 65 million to 75 million pounds, but expected to redeploy
most of the 1,000 or so staff.
Only three years ago, when the two firms announced plans
for the megastores, they promised a chain of up to 100 outlets
in Britain that would then sweep across Europe.
Best Buy, which is shrinking its U.S. megastores in the
face of stiff competition and weak consumer demand, said it
would focus in Europe on Carphone's existing smaller format
stores -- their Best Buy Europe business.
The two also unveiled a venture aimed at replicating Best
Buy Mobile's success in emerging markets.
Carphone Chief Executive Roger Taylor said the firms had
learned from the mistakes of the British megastores, and would
centre the new venture, called Global Connect, on a smaller,
fast-growing part of the electronics market and would work with
local partners to tap their expertise and reduce costs.
The initial focus would be China, where Global Connect
plans to introduce outlets into the 200 or so stores of Best
Buy's local partner Five Star. Standalone stores could follow,
Taylor told Reuters in a telephone interview.
Best Buy and Carphone also formalised their relationship
over Best Buy Europe, saying Best Buy would have the right to
buy Carphone's 50 percent stake from March 2015 and that, if it
did not do so, Carphone would have the right to buy Best Buy's
stake at a 10 percent discount to fair market value.
$1 = 0.6229 British pound