| NEW YORK/LONDON
NEW YORK/LONDON U.S. retailer Best Buy Co Inc (BBY.N) retreated from an ill-timed European expansion on Tuesday by selling its stake in a joint venture to Carphone Warehouse Group CPW.L for less than half of what it paid five years ago.
The 500 million pounds ($775 million) sale is the latest sign the world's largest consumer electronics chain is scaling back overseas ambitions to focus on its mainstay U.S. business, which faces cut-throat competition from the likes of Wal-Mart Stores Inc (WMT.N) and Amazon.com Inc (AMZN.O).
"The sale allows management to eliminate the European distraction, as it has been a much-debated topic in the investment community for some time," JP Morgan analyst Christopher Horvers said. "It also fully unwinds an ill-timed conquest into Europe."
The move, which will boost Best Buy's cash levels, could be a precursor to Best Buy resuming its share repurchase program, which it had put on ice last year, when results fell off the cliff, said BB&T Capital Markets analyst Anthony Chukumba.
Best Buy shares touched a year-high of $26.86 on Tuesday, while Carphone shares rose 17.8 percent at an all-time high of 240 pence.
The deal will strengthen Best Buy's balance sheet, simplify its business and improve its return on invested capital, CEO Hubert Joly said in a statement, adding that the timing and economics felt right for the deal.
But allowing for currency fluctuations, the price is less than half the roughly $2.1 billion Best Buy paid in 2008 for 50 percent of the independent mobile seller's retail operations.
"(Best Buy) basically paid 1.1 billion (pounds) for the same half they are selling back to us today for a lot less," said Carphone Chief Executive Roger Taylor. "When they bought in, they had aspirations to put Best Buy stores across Europe, and they probably paid a premium for that, and in the end that strategy didn't work for many reasons."
Europe's economic prospects continue to worsen on the back of searing budget cutbacks to deal with a crisis of government debt in several southern countries, while the U.S. economic recovery increasingly looks on track.
While Best Buy was able to use Carphone's phone expertise to boost its U.S. mobile business, the plans for a chain of European megastores fell apart because of weak consumer spending, low brand recognition and competition from local chains.
Ultimately, in 2011, Best Buy scrapped plans for the chain of European megastores and decided to focus on Carphone's existing smaller format stores there. It also bought Carphone out of its U.S. mobile phone joint venture for $1.3 billion.
Talks between the boards gathered momentum when Best Buy founder Richard Schulze tried to take the U.S. company private earlier this year, a move that would have triggered a change-of-ownership option for Carphone to buy out its partner.
Taylor said the deal, which is partly financed by the placing of 47.2 million new shares and leaves the British firm in charge of 2,400 stores in nine European countries, was good news for Carphone investors.
He said Best Buy's investment had effectively paid to establish TalkTalk (TALK.L), a broadband service provider spun off by Carphone Warehouse in 2010, and now worth 2.4 billion pounds ($3.7 billion), more than twice as much as its parent.
Ending the relationship would enable Carphone Warehouse to establish partnerships based on its mobile expertise with other retailers around the world, Taylor said.
"We did it with Best Buy in the U.S. It worked exceptionally well for them and for us. We want to explore the same opportunities with other retailers and distributors around the world," he said.
Carphone separately said it's like-for-like revenue rose 6.5 percent in the fourth quarter, beating analyst predictions of around 5 percent. It said it would exit the French market, where it is struggling.
"We believe Carphone Warehouse has paid an extremely good price," Citigroup analyst Assad Malic said. "This now means that Carphone Warehouse can apply for a premium listing and FTSE Index inclusion over time."
Best Buy estimated its European unit to have sales of $5.5 billion to $5.6 billion, and "immaterial" diluted earnings per share, excluding items, this financial year.
Outside the United States, Best Buy currently operates in Canada, China, Europe and Mexico. The sale "should not suggest any similar action" in other overseas markets, Joly said.
The boards of both companies have approved the deal, which is expected to close by the end of June. Best Buy expects to take a related non-cash asset impairment charge of about $200 million.
The sale price included 420 million pounds in cash and 80 million in Carphone's stock. Best Buy has also agreed to pay Carphone 29 million pounds (about $45 million) to satisfy obligations under existing agreements.
Once completed, the deal will also mark the end of their "Global Connect partnership," which was aimed at replicating Best Buy Mobile's success in emerging markets like China.
(Editing by Patrick Graham and Gunna Dickson)