May 8 (Bloomberg) -- Best Buy Co., the largest U.S. electronics retailer, will open its first stores in Europe by investing 1.1 billion pounds ($2.15 billion) in a joint venture with Carphone Warehouse Group Plc.

The 50-50 venture will include Carphone Warehouse's 2,400 retail stores in nine European countries, the companies said in a statement today. The assets will also include London-based Carphone Warehouse's share of an existing venture with Best Buy.

Best Buy will open stores under its brand name across Europe, beginning next year in the U.K., where the electronics retail market is dominated by DSG International Plc's Dixons, Currys and PC World stores. Richfield, Minnesota-based Best Buy has almost four times the revenue of its closest competitor, Circuit City Stores Inc.

``Best Buy has a much better chance of being successful in Europe by partnering with Carphone than they would opening stores there all by themselves,'' Anthony Chukumba, a New York- based analyst with FTN Midwest Securities Inc., said in an interview. ``Having a management team that already has experience and connections in Europe is a huge, huge benefit.'' He recommends investors buy Best Buy shares.

Best Buy spokeswoman Kelly Groehler said in an interview the company isn't naming the countries in which it will open stores. Carphone has stores in 10 European countries, including Germany, France and Spain.

Lower Debt

Carphone Warehouse, Europe's largest handset retailer, will use the proceeds to cut debt, invest in broadband expansion and make acquisitions. The deal will leave the ownership structure of Carphone Warehouse intact, including the minority stake held by founder and Chief Executive Officer Charles Dunstone.

Best Buy fell $1.40, or 3.2 percent, to $42.05 at 4:02 p.m. in New York Stock Exchange composite trading. The shares dropped 17 percent this year through yesterday.

Carphone Warehouse declined 10.25 pence, or 3.4 percent, to 289 pence in London trading after jumping 6.7 percent yesterday.

``This is an opportunity as much as anything to take advantage of our own expansion plans,'' Carphone Warehouse Chief Financial Officer Roger Taylor said on a conference call today.

Current Carphone Warehouse shops will keep the Carphone Warehouse name, the companies said. The new, larger stores that are opened in Europe will be branded Best Buy.

`Very Ambitious'

``We have very ambitious expansion plans,'' Taylor said, declining to disclose how many outlets the venture plans to open. ``The U.K. is obviously going to be a starting point.''

The first store will open in 2009, the companies said.

Best Buy is venturing into Europe two years after Wal-Mart Stores Inc., the world's biggest retailer, abandoned its attempt to gain a foothold with stores in Germany. The Bentonville, Arkansas-based chain sold its 85 German stores in 2006 because of competition from discount retailers Aldi Group and Lidl.

Bob Willett, the CEO of Best Buy International, will be chairman of the new venture, and Taylor will be CEO of the venture while retaining his current role.

The new company's board will include executives from Best Buy and Carphone Warehouse, including Dunstone.

In the U.S., Best Buy plans to set up a new mobile-phone department, with a wider selection of devices and wireless plans, at all of its U.S. stores in the next 18 months, it said April 2. About 180 of its 1,300 stores have the expanded section now.

Willet has said the overseas expansion will slow earnings growth in the coming year.

Best Buy currently has sites in Canada and China and also plans to open locations in Mexico and Turkey. Best Buy's international unit bolstered revenue 23 percent to $2.2 billion, helped by the weaker dollar and new stores, the company said April 2.

Carphone Warehouse and Best Buy have a partnership to run Best Buy Mobile in the U.S. and Geek Squad, Best Buy's technical services unit, in Europe. Best Buy bought 3 percent of Carphone Warehouse last year.

Best Buy plans to consolidate the new venture, which it forecast will add about $5 billion to fiscal 2009 revenue. Including the negative effect of the reduction in its share repurchases, the transaction is seen adding 5 cents to 7 cents to fiscal 2009 diluted earnings per share, the company said.

Last month, Best Buy reported fourth-quarter profit fell 3.4 percent to $737 million in the three months ended March 1. Sales rose 4 percent to $13.4 billion, the smallest gain in at least nine years.

Metro AG, the German owner of the Media Markt and Saturn chains, is Europe's largest consumer electronics retailer.

Broadband

Carphone Warehouse's Taylor said the company plans to continue its broadband expansion and forecast it will add 400,000 customers this year from the current base of 2.7 million subscribers.

Taylor said Carphone Warehouse ``will take a look'' at Tiscali SpA, the fourth-largest Internet provider in the U.K., which put itself up for sale in March.

Carphone Warehouse and Best Buy executives declined to comment on whether the agreement was an initial step toward a potential takeover of Carphone Warehouse.

Michael Jeremy, an analyst with Daniel Stewart in London, said a full sale of Carphone Warehouse to Best Buy is ``premature.''

``It's still early days for Charles Dunstone,'' Jeremy said. ``He still sees a new direction for the company.''

To contact the reporter on this story: Alex Armitage in London at aarmitage@bloomberg.net

Last Updated: May 8, 2008 16:08 EDT