Best Buy Co. (BBY), the world’s largest consumer-electronics retailer, will exit Europe by selling its 50 percent stake in a mobile-phone venture to partner Carphone Warehouse Group Plc (CPW) for 500 million pounds ($775 million).
Best Buy will receive 420 million pounds in cash and 80 million pounds in the U.K. company’s stock, the Richfield, Minnesota-based retailer said today in a statement. Carphone Warehouse shares surged as much as 15 percent, the most ever.
Best Buy Chief Executive Officer Hubert Joly, who took charge in September, is evaluating the retailer’s foreign units to free up cash and resources in his effort to revive U.S. stores hurt by competition from Amazon.com Inc. and Wal-Mart Stores Inc. Best Buy generates about 25 percent of its revenue from operations in Europe, China and Canada.
The transaction shows “that Best Buy is aggressively focused on turning around the core domestic business,” Christopher Horvers, an analyst at JPMorgan Chase & Co. in New York, wrote today in a note. He rates the shares as overweight, equivalent of a buy recommendation.
Best Buy projected revenue of $5.5 billion to $5.6 billion in Europe this fiscal year, with adjusted per-share earnings “expected to be immaterial.”
Best Buy climbed 7.4 percent to $25.99 at the close in New York trading. The shares have more than doubled this year, trailing only Netflix Inc. (NFLX) in the Standard & Poor’ 500 Index. The index has gained 12 percent.
“This transaction allows us to simplify our business,” Joly said in the statement. It also strengthens Best Buy’s return on invested capital and balance sheet, he said.
The European withdrawal “should not suggest any similar action in our other international businesses,” Joly said.
Best Buy’s international segment posted an operating loss of $881 million in the fiscal year ended Feb. 2 on revenue of $12.8 billion. Sales totaled $49.6 billion companywide.
Best Buy formed the Best Buy Europe joint venture with London-based Carphone Warehouse in 2008 and they now operate stores in eight countries.
The companies also are terminating a venture that sells laptops, tablets and mobile phones outside of Europe and North America. Best Buy said it will pay Carphone Warehouse 29 million pounds to satisfy obligations from that venture.
Today’s gain in Carphone Warehouse shares was the largest since the company listed in London in March 2010. The stock closed up 15 percent at 235 pence, the highest price in more than three months.
The U.K. retailer said it will sell 47.2 million new shares to help fund the cash element of the purchase price. The shares will likely be priced between 220 pence and 230 pence apiece, according to an e-mailed update sent by banks to clients and obtained by Bloomberg News.
Chairman Charles Dunstone and executive directors “intend to participate” in the share offer, according to the statement.
Under the terms of the deal, Carphone Warehouse will also pay a deferred cash amount of 50 million pounds, split equally between the first and second anniversaries of completion.
“We believe Carphone Warehouse has paid an extremely good price,” Citigroup Inc. analyst Assad Malic said in a report. “This now means that Carphone Warehouse can apply for a premium listing and FTSE Index inclusion over time.”
Carphone Warehouse also said fourth-quarter same-store sales rose 6.5 percent in the period ended March 31, beating Citigroup’s estimates. Growth was driven by the U.K. business.
The retailer said it is withdrawing from France, where markets are “particularly challenging.” The exit will be achieved with a mixture of store disposals and closures and will cost as much as 90 million pounds, it said.
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