Carphone Warehouse announces £1.1bn deal

Carphone Warehouse today announced plans to create a European consumer electronics empire after striking a £1.1bn (€1.4bn) deal with US group Best Buy.

Carphone Warehouse today announced plans to create a European consumer electronics empire after striking a £1.1bn (€1.4bn) deal with US group Best Buy.

The mobile phone retailer and TalkTalk operator is to spin off its 2,400-strong retail store network into a joint venture with Best Buy, with aims to open stores selling electronic goods from TVs to PCs and laptops throughout the UK and Europe.

Best Buy - one of America's biggest names in electronics retailing - has agreed to pay £1.1bn (€1.4bn) to buy a 50% stake in the new firm, which will mark Carphone Warehouse's first concerted push into the wider consumer electronics market.

Carphone Warehouse will retain its broadband operation, including TalkTalk and AOL Broadband, and plans to use the cash made from the transaction to further develop its fixed line telecoms business and reportedly fund a war chest to snap up struggling rivals.

It is thought that some of the money raised may go towards a potential bid for the UK operations of the broadband firm Tiscali, which has been put up for sale with the deadline for first round bids understood to be today.

Carphone Warehouse confirmed it was looking at Tiscali, but said it was "early days".

Under the deal with Best Buy, the Carphone Warehouse and Phone House brands will remain as high street stores, but the new venture will see larger retail park-sized consumer electronic Best Buy stores launch across both the UK and Europe.

The new outlets are set for roll-out in 2009.

Today's news comes after mounting speculation over an imminent deal between the two companies.

They have been working together for around two years, collaborating to bring Geek Squad, a 24-hour computer support task force, to European markets, while Carphone Warehouse has also been working with Best Buy on its US mobile phone offering.

Best Buy already owns a 3% stake in Carphone Warehouse.

The deal leaves the existing ownership structure of Carphone Warehouse intact however, with founder and chief executive Charles Dunstone retaining his stake of just more than 30%.

Mr Dunstone said: "Today's announcement marks the next big step in the Carphone Warehouse's growth story."

"We have been working closely with Best Buy for nearly two years and it is clear that we have very complementary cultures, skills and assets - it's a perfect match. It is also clear that we have a significant opportunity for incremental growth in our retail business which we can best realise with Best Buy on board."

The deal, which has yet to be approved by shareholders, will see the Carphone Warehouse retail management remain in place, with chief financial office Roger Taylor taking over as chief executive of the new group and Best Buy's Bob Willett joining as chairman.

Today's announcement will enable Carphone Warehouse to capture a bigger slice of the consumer electronics market, while also providing Best Buy with a platform to expand into Europe - a market worth around €115bn.

Best Buy already has 1,314 stores across the US and international operations in Canada and China, but is keen to tap into the European sector.

However, questions have been raised over the timing of the move, with electronics retailers under pressure to discount amid increasing competition and a slowdown in consumer spending.

Figures yesterday from the BRC/Neilsen shop prices index showed that electronics goods were 5% cheaper year-on-year in April, although Carphone Warehouse today brushed aside concerns, saying it was "an exciting time" for the wireless products market.

Mark James, an analyst at Collins Stewart, said the deal should be well received and may signal a first step in Carphone Warehouse's plans to exit retailing.

"We believe the deconsolidation by Carphone Warehouse is likely to be seen as a route to eventual complete exit," he said.

Shares in Carphone Warehouse dipped 2% after news of the Best Buy tie-up, which is yet to be officially named.

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