Best Buy teams up with leading European cell phone retailer

Consumer electronics chain Best Buy Co. Inc. is establishing a foothold in the European market with a $2.1 billion investment in the continent's largest cell phone retailer, allowing the American company to roll out its trademark big box stores in Europe, the companies said Thursday.

The London-based Carphone Warehouse Group PLC will put its 2,400 Carphone Warehouse and Phone House stores in Europe into the new joint venture.

In a conference call with analysts, the companies said they have been speaking for four years and have collaborated for two, developing the Best Buy Mobile concept for Best Buy stores in the U.S., and bringing Best Buy's Geek Squad, a 24-hour computer support task force, to Europe.

"We are partnering with an incredibly powerful and incredibly successful organization," said Charles Dunstone, chief executive of The Carphone Warehouse.

Executives from both companies declined to say how many Best Buy stores will open in Europe, or in which markets, because they didn't want to tip off the competition. However, they did say the stores will come in a range of sizes and will start opening next year.

Brad Anderson, chief executive of Best Buy, based in Richfield, Minnesota, said they will maintain Best Buy's reputation for aggressive price competition.

Carphone Warehouse's current European retail management team initially will remain in place, supplemented by additional personnel from Best Buy as the joint venture develops, the companies said.

RBC Capital markets analyst Scot Ciccarelli wrote the deal offers Best Buy "an intelligent and low-risk strategy to enter the European market," rather than starting from scratch.

He noted that Carphone Warehouse gets to keep its international business, receives an injection of cash to pay down debt and invest in operations, and will benefit from Best Buy's consumer electronics experience. RBC rates Best Buy stock a "top pick," its highest rating.

But Bank of America Equity Research analyst David Strasser, who has a "neutral" rating on the stock, wasn't enthusiastic. He wrote that Best Buy is "taking on significant exposure and balance sheet risk, at a time of increasing uncertainty in both the electronics industry and the broader retail environment."

However, he noted that the companies know each other well, and Best Buy will be entering the European market with a proven local partner. He said the accelerated rollout of Best Buy Mobile now planned for all Best Buy stores this year will be a strong improvement from Best Buy's previous wireless program. It could hurt U.S. competitor Radio Shack Corp.

But Strasser questioned the timing of the deal.

"Buying exposure in Europe and rolling out Best Buy stores in Europe is risky, in our opinion. ... (W)e believe the European consumer is heading into a U.S.-like slowdown after a robust spending period. Second, the success of U.S. retailers in Europe is pretty poor," he wrote.

Because of the deal, Best Buy is dropping its plan to buy back $800 million worth of its shares in its current fiscal year, which began March 2. The company said it expects the joint venture to add about $5 billion to its revenues and 5 cents to 7 cents per share to earnings for the year.

The Carphone Warehouse Group will continue as sole owner of its fixed line telecoms business in the United Kingdom, which includes TalkTalk, AOL Broadband and Opal; and its share of the Virgin Mobile France joint venture.

Carphone Warehouse shares fell 3.4 percent to 289 pence ($5.65) in London. Best Buy shares fell $1.40, or 3.2 percent, to $42.05.

The deal is subject to approval by Carphone Warehouse shareholders at its annual general meeting in August. It's expected to close by the end of August.

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Associated Press writer Robert Barr contributed to this report from London.

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On the Net:

Carphone Warehouse: http://www.cpwplc.com

Best Buy: http://www.bestbuy.com