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Best Buy Gets Carphone Warehouse, Shuts European Big-Box Stores

11/07/2011 10:02:46 AM Eastern
Minneapolis - In a series of announcements this morning, Best Buy said it plans to buy Carphone Warehouse Group, will shut its 11 big-box Best Buy Europe stores by the end of the year, and is buying business IT supplier MindShift Technologies.

Best Buy will purchase CPW's contractual interest in the U.S. and Canadian Best Buy Mobile profit-based management fee under the parties' 2007 Best Buy Mobile agreement, resulting in full ownership of all U.S. and Canadian profits as connection opportunities expand across additional categories.  

Best Buy will purchase CPW's contractual interest in the Best Buy Mobile profit share agreement for approximately $1.3 billion. This purchase is expected to be financed with Best Buy's existing domestic and international cash.

Best Buy Europe will focus on the installed base of approximately 2,500 small-box stores, transforming many to the next-generation Wireless World format, and plans to close the 11 big-box pilot stores in the United Kingdom by the end of the year, Best Buy said.

A new venture, called Global Connect, will be created by Best Buy and CPW "to provide the intellectual capital and connections expertise that has created the market-leading customer experience in North America and Europe to other markets worldwide," the retailer said.

"Each of these actions represents an exciting growth opportunity for Best Buy and near- and long-term value for our shareholders. We are aggressively ramping up our growing connections capability to support consumers' increasingly connected lives across the entire range of devices entering the marketplace," said Brian J. Dunn, CEO of Best Buy. "Over the past four years we have built unsurpassed expertise and depth of offerings in mobile. No other retailer has our carrier and vendor relationships across all product categories, our well-established multichannel presence, and the Geek Squad ensuring that you walk out with your technology working."  

The Best Buy Mobile profit share agreement is a profit-based management fee agreement under which Best Buy makes payments to Best Buy Europe, which is 50 percent owned by CPW. This transaction will result in the transfer to Best Buy of CPW's interest in the Best Buy Mobile profit share agreement. In conjunction with the transaction, Best Buy and CPW have entered into a consultancy agreement by which Best Buy intends to pay to CPW 5 million pounds per year for up to five years in exchange for ongoing management consulting services with respect to its U.S. and Canadian Best Buy Mobile businesses.  

Best Buy Europe operates about 2,500 stores in the U.K. and under The Carphone Warehouse and The Phone House brands.

Best Buy Europe said it plans to "leverage the strength of the installed base of approximately 2,500 small-box mobility stores and upgrade many to the Wireless World store by taking its historically successful format to the next level of store experience and service and incorporating an even wider range of connectivity devices," the retailer said.

Due primarily to the big-box pilot store closures, results for the second half of fiscal 2012 are expected to include pretax restructuring charges of $250 to $270 million (of this amount approximately $140 to $150 million will be attributable to Best Buy). As a direct result of the purchase of CPW's contractual interest in Best Buy Mobile, which is currently held within Best Buy Europe, and the closure of the big-box U.K. stores, the company expects to record a non-cash write-down of substantially all of the $1.2 billion of goodwill attributable to Best Buy Europe in the fourth quarter of fiscal 2012.

Best Buy and CPW also are announcing the creation of a new global mobile and connectivity venture called Global Connect. The companies said they see significant opportunities to build on and recreate the success of their mobile businesses by providing expertise in select markets globally. The new venture plans to partner with third parties to improve the performance of their connected products and services business, providing them with immediate global scale in vendor relationships, value proposition expertise and intellectual capital.

Best Buy and CPW expect these partnerships to require little or no capital investments, instead providing world-leading consulting expertise and connectivity talent in return for a share in profits. In addition, the Global Connect venture will provide expertise to Best Buy's existing operations in China and Mexico by leveraging the Best Buy Mobile model. The companies are in discussions with a number of potential partners in other parts of the world.

Best Buy has also reached an agreement to acquire MindShift Technologies, a managed service provider (MSP) for small and midsized businesses, for $167 million.

MindShift provides Cloud services, data center services and professional services to more than 5,400 clients and 25,000 managed desktops in key markets throughout the United States.

In a statement, Best Buy said the combination of MindShift's capabilities and Best Buy's points of distribution through its retail, Geek Squad services and Best Buy For Business operations is expected "to create a competitive advantage that would provide an opportunity for the two companies to capture greater share within the estimated $40 billion small and midsized business MSP market."

Through the acquisition, Best Buy will help MindShift expand its capabilities for current and future clients in such industries as legal, healthcare, financial, non-profits, associations and education. Like Best Buy's purchase of Geek Squad in 2002, the goal of the acquisition is to support and leverage the proven MindShift business model while giving its management the freedom and resources to grow.

MindShift will continue to operate under its current name, management team and capabilities, which currently include 500 employees at offices in Boston; Commack, N.Y.; Minneapolis; Morrisville, N.C.; New York; Philadelphia; and Washington.

The transaction, which is expected to close on or around calendar year-end, is subject to customary closing conditions.

Best Buy is also changing its fiscal year, starting with fiscal 2013. Beginning in fiscal 2013, Best Buy's new fiscal year will end on the Saturday nearest the end of January, rather than the Saturday nearest the end of February, under the existing fiscal calendar. This change will not impact the fiscal 2012 reporting. The company believes this change will provide numerous benefits, including aligning its reporting periods to be more consistent with peer retailers.
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