Best Buy is buying out Carphone Warehouse’s (CPW) share of the profits from the partners’ Best Buy Mobile joint venture in the U.S. and Canada, and will shut its 11 big-box Best Buy stores in the United Kingdom.
The purchase, for $1.3 billion, of CPW’s contractual interest in the profit-based management fee under the parties’ 2007 Mobile agreement will result in Best Buy’s full ownership of all U.S. and Canadian profits “as connection opportunities expand across additional categories,” the CE chain said.
The purchase is expected to be financed with Best Buy’s existing domestic and international cash.
The Best Buy Mobile profit share agreement was a profit-based management fee agreement under which Best Buy makes payments to Best Buy Europe, which is 50 percent owned by CPW. The 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.
In the wake of the U.K. store closures, the company’s Best Buy Europe operation will focus on the installed base of approximately 2,500 small-box stores in the U.K. and on the Continent under The Carphone Warehouse and The Phone House brands. Many of the stores will be upgraded to the companies’ next-generation Wireless World format, which takes their “historically successful format to the next level of store experience and service and incorporating an even wider range of connectivity devices,” Best Buy Europe said.
The partners are also forming a new global mobile and connectivity joint venture called Global Connect, which will leverage “significant opportunities to build on and recreate the success of their mobile businesses by providing expertise in select markets globally” by using “the intellectual capital and connections expertise that has created the market-leading customer experience in North America and Europe to other markets worldwide,” the companies said. The new venture also 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. The companies said they are in discussions with a number of potential partners in other parts of the world.
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.
“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,” Best Buy CEO Brian Dunn said in a statement.