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Best Buy Keeping Mobile Partnership Profits, Shutting Big-Box Stores In United Kingdon


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.