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Best Buy To Acquire Future Shop

8/20/2001 02:00:00 AM Eastern

The nation's largest consumer electronics retailer, Best Buy, announced that it will acquire Future Shop, Canada's largest CE chain, for approximately $377 million.

Under the agreement, which is scheduled to close in late September, Minneapolis-based Best Buy has agreed to tender an offer of cash for Future Shop stock. Best Buy expects to add Future Shop's earnings to its own in the current fiscal year, increasing its per-share value.

"This acquisition accelerates by several years our goal of becoming North America's premier retailer and eventually the leading global retailer of technology and entertainment products and services," said Dick Schulze, founder, chairman and CEO of Best Buy, which placed No. 1 on the 2001 TWICE Retail Registry.

In the beginning, the Burnaby, B.C.-based Future Shop, which opened in 1982 and currently operates 88 stores as well as the Web site, www.FutureShop.ca, will operate as a separate Canadian subsidiary of Best Buy Co.

"We're not changing anything immediately," vice chairman Brad Anderson told TWICE. But, it is likely that the company will eventually change the names of the Canadian stores to Best Buy, he said.

"We want to build Best Buy as a global brand," Anderson said. But, before a name change occurs, the sales structure at Future Shop stores will have to transition from commissioned to non-commissioned — a process the chain is familiar with from when it moved all Best Buy stores away from a commissioned sales structure in 1989-93.

"Future Shop's current leadership is going to be the leadership we keep in place … [and] we're hoping we can hang on to most of the salespeople," he said.

Best Buy's relationship with Future Shop began in early 1999, when it purchased some Future Shop stores in the United States, Anderson said. In December 2000, Best Buy began a buying spree, announcing plans to purchase Musicland Group and Magnolia Hi-Fi in a cash deal worth more than $760 million. The purchases placed 1,331 stores in the Music-land stable — including Sam Goody and Suncoast — and Magnolia Hi-Fi's 13 Pacific Northwest locations under Best Buy's corporate umbrella.

At the time, Best Buy also revealed plans to penetrate the Canadian market.

"We had talked about [buying Future Shop] as a possibility, but we didn't think we could pull it off financially," Anderson said. Now, with Best Buy's financial state defying the rocky market place, he said, the company feels comfortable moving forward with expansion.

"We think we can put a foundation in place [in Canada], and that it also could be used by some of the other brands," Anderson said. "At this point in time … Best Buy is doing well. If you're doing well in the current [economic] climate, it gives you confidence going forward with expansion."

In addition to the Future Shop stores, the company is planning 60 new Best Buy stores this year, 75 On Cue (the rural branch of the Musicland group) stores, as well as some Sam Goody stores and possibly a few Suncoast stores, he said.

When the deal is closed, Future Shop founder Hassan Khosrowshahi will relinquish his role as chairman and CEO. Kevin Layden, president and chief operating officer, will continue as president of Future Shop and will report to Anderson. Thomas Healy, former president of Best Buy Canada, will become president of Best Buy International, also reporting to Anderson.

Given this transaction, Best Buy anticipates it will meet or exceed analysts' earnings expectations for its second quarter and fiscal year.

Future Shop reported $1.3 billion in sales for the fiscal year ended in April, an increase of 18 percent compared to last year. Same-store sales for the period grew 17 percent.

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