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Best Buy pulls the plug on European venture in sale to Carphone Warehouse Best Buy pulls the plug on European venture in sale to Carphone Warehouse
(5 months later)
Best Buy, the troubled US electronics retailer, has pulled the plug on its costly European foray, selling the division at a fraction of its cost back to its former partner, the UK's Carphone Warehouse.Best Buy, the troubled US electronics retailer, has pulled the plug on its costly European foray, selling the division at a fraction of its cost back to its former partner, the UK's Carphone Warehouse.
The world's largest electronics retailer invested $2.15bn in Best Buy Europe, a joint venture with Carphone Warehouse launched in 2008. At the time the company announced "ambitious expansion plans" to open its "big box" stores across Europe. It is now selling back its 50% stake in the joint venture for £500m ($775m).The world's largest electronics retailer invested $2.15bn in Best Buy Europe, a joint venture with Carphone Warehouse launched in 2008. At the time the company announced "ambitious expansion plans" to open its "big box" stores across Europe. It is now selling back its 50% stake in the joint venture for £500m ($775m).
The joint venture operates 2,400 stores across eight European countries and trades under the Carphone Warehouse and Phone House brands. Initially the partners planned to replicate Best Buy's US-style large format stores across Europe. But the venture was hampered by the European credit crisis and subsequent recession as well as the shift to online shopping.The joint venture operates 2,400 stores across eight European countries and trades under the Carphone Warehouse and Phone House brands. Initially the partners planned to replicate Best Buy's US-style large format stores across Europe. But the venture was hampered by the European credit crisis and subsequent recession as well as the shift to online shopping.
Best Buy scrapped its big box expansion plans in 2011, closing its initial stores in the UK to concentrate on smaller format stores. It also ended a US joint venture paying Carphone Warehouse $1.3bn for its interest in Best Buy Mobile.Best Buy scrapped its big box expansion plans in 2011, closing its initial stores in the UK to concentrate on smaller format stores. It also ended a US joint venture paying Carphone Warehouse $1.3bn for its interest in Best Buy Mobile.
"[Best Buy] basically paid £1.1bn for the same half they are selling back to us today for a lot less," Carphone chief executive Roger Taylor told Reuters. "When they bought in they had aspirations to put Best Buy stores across Europe, and they probably paid a premium for that, and in the end that strategy didn't work for many reasons.""[Best Buy] basically paid £1.1bn for the same half they are selling back to us today for a lot less," Carphone chief executive Roger Taylor told Reuters. "When they bought in they had aspirations to put Best Buy stores across Europe, and they probably paid a premium for that, and in the end that strategy didn't work for many reasons."
"After reviewing the business and spending time with our partners, we concluded that the timing and economics were right to enter into this agreement with CPW," said Hubert Joly, president and chief executive officer of Best Buy. "This transaction allows us to simplify our business, substantially improve our return on invested capital, and strengthen our balance sheet.""After reviewing the business and spending time with our partners, we concluded that the timing and economics were right to enter into this agreement with CPW," said Hubert Joly, president and chief executive officer of Best Buy. "This transaction allows us to simplify our business, substantially improve our return on invested capital, and strengthen our balance sheet."
"Each international market is different and the sale of our European operations should not suggest any similar action in our other international businesses," he said."Each international market is different and the sale of our European operations should not suggest any similar action in our other international businesses," he said.
Best Buy will receive £420m in cash and £80m worth of Carphone shares, which are subject to a 12-month lock-up restriction. Best Buy also agreed to pay £29m ($45m) to satisfy existing agreements. In the first quarter of fiscal 2014, the company said it intends to report a charge of approximately $200m associated with accumulated foreign currency translation losses that will be written off at the time of closing.Best Buy will receive £420m in cash and £80m worth of Carphone shares, which are subject to a 12-month lock-up restriction. Best Buy also agreed to pay £29m ($45m) to satisfy existing agreements. In the first quarter of fiscal 2014, the company said it intends to report a charge of approximately $200m associated with accumulated foreign currency translation losses that will be written off at the time of closing.
Best Buy has been struggling in its home market for the last two years as online retailers, in particular Amazon, have picked up an ever growing percentage of its sales. The company has been shutting hundreds of stores, sacking staff and cutting costs. In March it announced losses of $409m in the fourth quarter down from $1.82bn in the same quarter a year earlier.Best Buy has been struggling in its home market for the last two years as online retailers, in particular Amazon, have picked up an ever growing percentage of its sales. The company has been shutting hundreds of stores, sacking staff and cutting costs. In March it announced losses of $409m in the fourth quarter down from $1.82bn in the same quarter a year earlier.
The US retailer's shares spiked over 10% on the New York Stock Exchange Tuesday after news of the European sell-off. In London, Carphone's shares hit a three-month high after the news.The US retailer's shares spiked over 10% on the New York Stock Exchange Tuesday after news of the European sell-off. In London, Carphone's shares hit a three-month high after the news.
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