By Adam E. John
Best Buy is reshaping how it manages connections in the United States and Canada, refocusing its European operations on a broader range of connections, and creating a new global relationship with Carphone Warehouse Group (CPW).
Best Buy Purchases CPW’s Interest in Best Buy Mobile Profit Share Agreement: 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.
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.
Best Buy and CPW have also entered into a consultancy agreement by which Best Buy intends to pay to CPW GBP5 million 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 will focus on the installed base of approximately 2,500 small box stores, and close the 11 big box pilot stores in the United Kingdom: Best Buy Europe operates approximately 2,500 stores branded The Carphone Warehouse and The Phone House. Best Buy Europe launched a big box format test in the U.K. in April 2010, ultimately resulting in 11 stores.
Based on challenging economic conditions and profit expectations of these stores, Best Buy Europe is announcing that it plans to close all 11 of these stores effective at the end of the calendar year.
A new venture, called ‘Global Connect’ will be created by Best Buy and CPW: Best Buy and CPW are creating a global mobile and connectivity venture called ‘Global Connect.’ The new venture plans to partner with third parties to improve the performance of their connected products and services business.
Best Buy and CPW expect these partnerships to require little or no capital investments. 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.
Brian J. Dunn (CEO, Best Buy): Each of these actions represents an exciting growth opportunity for Best Buy and near and long-term value for our shareholders.