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By Mike Caggeso
Best Buy Co. (BBY) is planting its flag in European soil with a $2.1 billion 50-50 joint venture with London-based Carphone Warehouse Group PLC, giving the largest U.S. electronics retailer a much-needed inroad to Europe's highly competitive electronics retail market.
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Though it has stores in Canada and China, Best Buy has yet to open a store in Europe, and reasonably so. Europe's $175 billion electronics retail market is dominated by German retailer Metro AG and DSG International PLC, the latter a three-headed monster that owns chain stores Dixons, Currys and PC World.
The European joint venture between the companies follows a similar deal in the United States. Last September, Best Buy bought a small stake in Carphone Warehouse, whose core business is mobile and fixed-line communication products and services. It has 2,400 retail stores in nine European countries.
Carphone Warehouse said it plans to use the proceeds of the venture to pay down debt, make acquisitions and invest in broadband expansion.
With their European joint venture, the companies are tapping a new and major market together.
"Best Buy gets knowledge of the European market quite quickly," London-based Daniel Stewart Securities PLC analyst Michael Jeremy told Bloomberg. "This gives Carphone Warehouse more options in broadband."
In its fiscal fourth quarter ended March 1, Best Buy posted better-than-expected earnings despite being stifled by lower traffic in its U.S. stores. Same-store sales in the international segment are expected to outperform U.S. sales in fiscal 2009, Reuters reported.
The first Best Buy store will open next year in the United Kingdom.
Back in the States, rival Circuit City is mulling a major option of its own – an up-to $1.4 billion unsolicited takeover offer from Blockbuster Inc. (BBI).
That offer has attracted a large number of critics, including Circuit City.
"To date Blockbuster has been unable to satisfy Circuit City and its advisers that Blockbuster's proposal could be financed," Circuit City said in a statement.
For Best Buy, however, its game plan has both financial backing and name-recognition behind it in a new and growing market.
"Best Buy has a much better chance of being successful in Europe by partnering with Carphone than they would opening stores there all by themselves," Anthony Chukumba, a New York-based analyst with FTN Midwest Securities Inc., told Bloomberg. "Having a management team that already has experience and connections in Europe is a huge, huge benefit."
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