Best Buy enters Europe with Carphone retail venture

By Kate Holton

LONDON (Reuters) - U.S.-based Best Buy Co Inc (BBY.N), the world's biggest electronics retailer, is to pay $2.1 billion for half of Britain's Carphone Warehouse Group Plc's (CPW.L) retail business to take on the European consumer electricals market.

The deal creates a joint venture that will compete with DSG International Plc (DSGI.L), formerly called Dixons, and Kesa (KESA.L) which owns the French group Darty.

Carphone, Europe's biggest independent mobile phone retailer, and Best Buy, estimate the size of the European market for consumer electronics to be around 89 billion pounds ($174 billion).

The pair said the 50-50 owned company would target a growing appetite for consumer electronics, but analysts said the pair are entering a tough market where incumbents are struggling.

"European consumers are facing some of the same pressures that U.S. consumers are," Carphone Chief Executive Charles Dunstone said during a conference call. But even so, there were now opportunities to obtain high-quality retail space.

"The current environment I certainly hope isn't going to last forever," Dunstone said.

Carphone's 2,400 existing stores will continue to operate under the Carphone Warehouse and Phone House brands in its nine European markets, and from 2009 the new company will roll out larger stores under the Best Buy name.

The deal "provides us with the other giant consumer electronics marketplace in the world where Best Buy currently has very little offering," Best Buy Chief Executive Brad Anderson said.

Anderson added that the tie-up gives Best Buy, which is facing a soft spending environment at home as the U.S. economy slows, "a long-term growth horizon that we think is extraordinary."

Analysts said Best Buy would bring its understanding of the consumer electronics market to Europe, a region it has long wanted to enter, but cautioned it could take some time to roll out the stores and secure a strong presence.

"We would expect substantial investment to build out the business," U.S.-based Sanford Bernstein analyst Colin McGranahan said in a research note.

Best Buy sells consumer electronics, home-office products and entertainment software in the United States, Canada and China. The new company will open Best Buy stores in Britain and other European countries but officials of both companies weren't specific on numbers.

Best Buy said the venture was expected to be funded through a combination of cash on hand, existing bank lines and other borrowing. It also said it now did not expect to repurchase shares under its existing repurchase program in fiscal 2009.

Best Buy said it expected the deal to add around $5 billion to fiscal 2009 revenue, and boost earnings by five to seven cents a share in the current year.

The announcement follows months of speculation about a tie-up between the two companies after Best Buy took a small stake in the British company last year. The two companies also operate mobile phone stores in the United States.