As Best Buy attempts a return to financial well-being, it's decided to sell the 50 percent share it still owns in Best Buy Europe to fellow joint venture partner Carphone Warehouse. The price is set at about 500 million GBP ($775 million, mostly in cash) and is expected to close by June. Best Buy paid $2.15 billion for its share of the business back in 2008 and the first branded store opened in 2010, but it was already looking for a way out by 2011. That's when it closed its UK stores and paid Carphone Warehouse $1.3 billion for its share in the US Best Buy Mobile business. Reporting the joint venture as discontinued operations for its next fiscal year will cause Best Buy to take a $200 million charge, and it's tossing Carphone Warehouse another $45 million to satisfy outstanding obligations like closing the Global Connect JV the two started in 2011. There's no word on any moves for its business in Mexico, Canada and China, and CEO Hubert Joly says this sale "should not suggest any similar action" elsewhere.
Best Buy to Sell its Stake in European Business to Carphone Warehouse
(Thomson Reuters ONE via COMTEX) --MINNEAPOLIS - April 30, 2013 - Best Buy Co., Inc. (NYSE:BBY), the leading authority and destination for technology products and services, today announced that it has entered into a definitive agreement for the sale of its 50 percent interest in Best Buy Europe, the joint venture it created in 2008 with Carphone Warehouse Group plc (CPW). The sale price of GBP 500 million (approximately $775 million as of April 29, 2013) is comprised of GBP 420 million in cash and GBP 80 million in CPW stock subject to a 12-month lock-up restriction. During the lock-up period, however, both parties have agreed that CPW will be able to place the CPW shares on behalf of Best Buy at or above the issue price, with any additional proceeds above the issue price being retained by CPW. If, at the end of the lock-up period, the sum of the total proceeds received by Best Buy from sales of the CPW shares by CPW plus the market value of any remaining shares is less than GBP 64 million (approximately $99 million), CPW will pay such deficiency to Best Buy.
In conjunction with the transaction, Best Buy has agreed to pay CPW GBP 29 million (approximately $45 million as of April 29, 2013) in satisfaction of obligations under existing agreements, including the parties' Global Connect partnership, which will be terminated at closing.
The boards of directors of both companies have approved this transaction. All directors of CPW have also signed letters of commitment to vote their shares in support of the transaction. The transaction is subject to approval by the shareholders of CPW, but is not subject to any closing conditions in respect of financing. The transaction is expected to close by the end of June 2013.
Beginning in the first quarter of fiscal 2014, Best Buy intends to report the results of the Best Buy Europe joint venture in discontinued operations, including an estimated non-cash asset impairment charge of approximately $200 million, associated with accumulated foreign currency translation losses that will be written off at the time of closing.
Prior to entering into this agreement, U.S. GAAP revenues for Best Buy Europe in fiscal 2014 were expected to be in the range of $5.5 to $5.6 billion. Adjusted (non-GAAP) diluted earnings per share were expected to be immaterial.
"After reviewing the business and spending time with our partners, we concluded that the timing and economics were right to enter into this agreement with CPW," said Hubert Joly, president and chief executive officer of Best Buy. "This transaction allows us to 1) simplify our business; 2) substantially improve our Return on Invested Capital, one of the five pillars of our Renew Blue transformation; and 3) strengthen our balance sheet," added Joly.
"Each international market is different and the sale of our European operations should not suggest any similar action in our other international businesses," said Joly.
Best Buy formed the Best Buy Europe joint venture with CPW in June 2008. The joint venture operates stores in eight countries. Additional details on this transaction are available in the Company's Form 8-K, to be filed this morning.