Best Buy bags U.S. mobile venture, axes United Kingdom chain

RICHFIELD, Minn. ― U.S. retailer Best Buy Co. Inc. is buying its British partner out of a fast-growing U.S. mobile phone joint venture for $1.3 billion and scrapping plans for a chain of European megastores, it said on Monday.

The moves are the latest sign Best Buy is scaling back its overseas ambitions to focus on its main U.S. business, which faces stiff competition from discounters and online retailers. Earlier this year, the U.S. group dropped plans for Best Buy-branded stores in China and Turkey.

The decisions also underscore the gloomy outlook for European retailers as consumers there grapple with rising prices, subdued wages growth and government austerity.

Best Buy said it would buy out Carphone Warehouse Group Plc from a profit share agreement of their Best Buy Mobile venture in the United States, which has been benefiting from soaring demand for smartphones like Apple’s iPhone.

The deal, along with a new venture aimed at replicating Best Buy Mobile’s success in emerging markets, helped to move attention away from the closure of the pair’s loss-making megastores business in Britain, as well as a larger-than-expected drop in Carphone’s first-half earnings.

Carphone shares were up 1.5 percent at 350 pence, outperforming a 1.3 percent fall in the STOXX Europe 600 European retail index.

Barclays analysts said Carphone was getting a good price, with the 838 million pound ($1.3 billion) deal worth more than the entire equity valuation of the British group when it was demerged from telecoms arm TalkTalk last year.

Carphone said it would return proceeds from the deal to investors, giving a big windfall to founder Charles Dunstone.

Dunstone, who owns about 29 percent of Carphone Warehouse according to Reuters data, has been praised by investors for striking his initial deal with Best Buy in 2008, shortly before a plunge in equity market valuations.

Best Buy said taking full control of Best Buy Mobile and closing British megastores would add 35-40 cents to fiscal 2013 earnings. The one-off cost of both actions, plus a non-cash impairment to write down goodwill, was $2.6 billion, it added.

Best Buy bought 50 percent of Carphone’s retail operations for about $2.1 billion in 2008 to tap the British firm’s expertise in mobile phones and to act as a springboard for expansion across Europe.

While the U.S. mobile phone business has exceeded expectations, the plans for a chain of European megastores have been hit by weak consumer spending, low brand recognition and competition from incumbent players such as Dixons.