Carphone to focus on broadband after Best Buy deal

By Kate Holton - Analysis

LONDON (Reuters) - The move by Carphone Warehouse to fold its retail unit into a new company with U.S. firm Best Buy will allow it to focus on broadband and become the largest provider in Britain if it buys the UK arm of Tiscali.

Its plans could ultimately result in a demerger and the possible sale of Carphone's telecom arm to the likes of Telefonica (TEF.MC) or Vodafone (VOD.L).

Europe's biggest independent mobile phone retailer Carphone (CPW.L) said on Thursday it would sell a 50 percent stake in its retail unit to Best Buy (BBY.N) and form a joint company to sell consumer electronics goods across Europe.

Carphone said it will use the $2.1 billion it receives for the retail stake to pay off debt and to invest in its broadband business and infrastructure.

Carphone, founded in 1989 by Charles Dunstone, is known for making opportunistic acquisitions and it is now seen as the front runner to acquire the UK broadband unit of Italian group Tiscali (TIS.MI) which is up for sale. Analysts think it will fetch over 500 million pounds ($976.6 million).

Carphone bought Time Warner Inc.'s (TWX.N) AOL Internet access business for 370 million pounds ($722.6 million) in 2006 and Tiscali's shares were up over 5 percent on Thursday.

"Tiscali is the last major acquisition opportunity," Enders analyst Ian Watt said.

"Tiscali itself acquired Pipex which had previously consolidated small (Internet Service Providers). The top four providers are now accounting for something around 80 percent of subscribers and the only guys left are niche players."

If successful, Carphone would overtake BT Group (BT.L) and cable operator Virgin Media (VMED.O) as Britain's largest broadband provider from its current position of third.

"Selling mobile phones is a maturing market," said Mike Jeremy an analyst from Daniel Stewart.

"It's a good thing to get away from distribution and now they've got cash to further a (broadband) strategy which is already pretty successful."

BEST DEAL

Carphone's affable 43-year-old Chief Executive Dunstone does not currently appear to be looking to sell either unit of his business but analysts believe the Best Buy deal will make an eventual demerger more likely.

Dunstone owns almost 33 percent of the group.

"With valuation of the 50/50 joint venture crystallised, attention will divert to the valuation of Carphone's telco arm," Collins Stewart analyst Mark James said in a note.