Best Buy calls for carphone

Best Buy's 50 per cent stake in Carphone Warehouse will give the US retailer a valuable opportunity to take its electronics business global, but don't bank on a takeover. By James Moore

It might have a tacky name and a garish corporate colour scheme that makes it look like Ikea in reverse. But Best Buy's entrance into Britain poses a serious threat to the country's existing electronics retailers, not to mention new kids on the block like Tesco.

The US retailer – nicknamed "the big blue box" in its homeland – is using Carphone Warehouse as its Trojan Horse into Europe, paying £1.1bn for a 50 per cent stake in the latter's retail operations.

From Carphone's perspective the deal's attractions are obvious. While some will be disappointed with the creation of the joint venture (rumours had been circulating of a full-scale takeover of the group, or at least a sale of the division to Best Buy), the cash raised will enable the group to deal with a debt pile that had risen to disturbing levels (£800m at the most recent calculation).

It will also provide Carphone Warehouse with ample firepower for the funding of a possible takeover of Tiscali's UK business and provide the capital, know-how, and crucially, the buying power needed to expand into the fiercely competitive consumer electronics market.

For Best Buy the attractions are, on the face of it, less obvious. The deal values Carphone's retail business at £2.2bn. That represents seven times 2008-09 forecast earnings and is above most analysts' reckoning of what the business is worth. What is more, Best Buy is splashing the cash at a time when conditions on the high streets – and out-of-town retail parks – of Britain and Europe are hardly happy.

In Carphone's home market inflation is rampant, driven by soaring food and fuel prices, and the credit crunch has brought the debt-driven consumer boom to a halt. The economic sentiment is rotten and purse strings are being tightened across the board as feeding the family and fuelling the car take priority over hi-tech toys, however whizzy.

But Charles Dunstone, Carphone's founder, has an answer for this. "It presents us with an opportunity," he said. "Our large format stores will be Best Buy. We want to bring the brand over here and get the yellow tag well known in Europe. The slowdown means we can get space in the market place at competitive prices."

This space is expected to be in out-of-town locations where larger stores can more easily be built. Both companies are coy over exactly how big those stores will be – although Best Buy said that the "availability of real estate" would be the limiting factor.

However, the US outlets are both larger and more ambitious than anything currently found in the UK, selling a huge range that includes everything from flat-screen televisions and computers to washing machines and fridges. In its presentation Best Buy said it aimed to "own its customers' home". It is one of those catchy phrases that probably sounds great in the boardroom and rather scary to the outside world.

But essentially it means that Best Buy wants to provide every gizmo you might want, while "enhancing the electronics experience" by helping you use them with the aid of its "Geek Squad" team of engineers and electronics experts. And if it can get the service aspect right they have a real opportunity. Service at the existing players is not always good – all too often staff appear to have little knowledge of the products they sell. Those that do can come across as supercilious, even patronising.

Best Buy claims to be different. Its chief executive Brad Anderson said: "I started off as a clerk; a spectacularly bad one. But when I finally made my first sale I took a 20-mile trip to deliver and install the speakers I'd sold. I learned about the importance of service from that."

The company started off as Sound of Music, an audio speciality store in Minnesota, in 1966. Four years later it had breached the $1m turnover barrier after becoming a public company the year before.

The most profitable store in 1981 was destroyed by a tornado, but the company shrugged it off, and now its "tornado sale" has become an annual event. While Best Buy, the name it adopted in 1983, has not been without problems during its rapid expansion, it is now the world's biggest electronics retailer with nine brands, 150,000 employees, 1,300 stores in the US, Canada and China and a 21 per cent market share in the US alone.

Europe has long been in its sights and Carphone's share price has been on the rise ever since Best Buy first took a 3 per cent stake in the company last year. So why not just take over the whole thing?

"We thought about it," admitted Mr Anderson. "It was an option but Carphone Warehouse is an unusual company in the way it is put together. If we did a full merger it would be harder to explain to our shareholders because there is just no equivalent in the US. What we are saying is we want to work with the Carphone people together on this."

And so it's a truly 50-50 deal, with a joint shareholder board of three people from each side to which management will report.

Intriguingly, the chief executive of the JV will be not Mr Dunstone (he will sit on the shareholder board) but his long-time finance director Roger Taylor. He and his team will, of course, be in the words of Mr Dunstone "augmented with people from Best Buy".

The structure would, however, leave Mr Dunstone free to concentrate on Carphone's telecommunications and broadband business that now appears to have more attraction to him than the stores that made his fortune.

So will this lead to a full-scale takeover down the line? Mr Anderson insisted "it could go either way". But don't bank on it. US companies have traditionally been willing to pay up if that is what is required to get them into new markets and take their businesses global. This deal looks very much like one of these. Best Buy's competitors had best raise their game. It looks like the new kid on this block is planning for a long stay.

Dunstone talks down 'knock-out' bid for Tiscali

Carphone Warehouse founder Charles Dunstone was yesterday desperately playing down prospects of a knock-out bid for Tiscali's UK broadband business.

The £1.1 bn deal with Best Buy has turned a debt mountain of £800m into a cash pile of more than £250m.

Carphone is one of eight bidders for Tiscali, with its initial bid for the UK business competing with BSkyB, BT, Virgin and Vodafone.

But Mr Dunstone made a point of insisting that he would not overpay.

"We will use the funds to pay down debt and invest in new growth opportunities," he said. "But I don't think Tiscali is worth any more today than it was yesterday."

But if the rumours in the City have any truth the issue is not what is on Carphone's radar but what radar it is on. Vodafone was again touted as a bidder for Carphone's broadband and fixed line business, with talk of an announcement as soon as next week. Mr Dunstone holds a third of the shares and would probably want a pretty price.

Start your day with The Independent, sign up for daily news emails
Sport
England's women celebrate after their 3rd place play-off win against Germany
Women's World CupFara Williams converts penalty to secure victory and bronze medals
Arts and Entertainment
Ricardo by Edward Sutcliffe, 2014
artPortraits of LA cricketers from notorious suburb go on display
News
newsHillary Clinton comments on viral Humans of New York photo of gay teenager
Arts and Entertainment
The gang rape scene in the Royal Opera’s production of Gioachino Rossini’s Guillaume Tell has caused huge controversy
music
ebooks
ebooksAn introduction to the ground rules of British democracy
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Sales Assistant / Buyer

£15000 - £17000 per annum: Recruitment Genius: This company offers a range of ...

Recruitment Genius: Customer Service Advisor

£15000 - £16000 per annum: Recruitment Genius: Customer Service Advisors are r...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE £45K: SThree: SThree were established in 1986....

Recruitment Genius: Compliance Manager

£40000 - £60000 per annum: Recruitment Genius: A Compliance Manager is require...

Day In a Page

The Greek referendum exposes a gaping hole at the heart of the European Union – its distinct lack of any genuine popular legitimacy

Gaping hole at the heart of the European Union

Treatment of Greece has shown up a lack of genuine legitimacy
Number of young homeless in Britain 'more than three times the official figures'

'Everything changed when I went to the hostel'

Number of young homeless people in Britain is 'more than three times the official figures'
Compton Cricket Club

Compton Cricket Club

Portraits of LA cricketers from notorious suburb to be displayed in London
London now the global money-laundering centre for the drug trade, says crime expert

Wlecome to London, drug money-laundering centre for the world

'Mexico is its heart and London is its head'
The Buddhist temple minutes from Centre Court that helps a winner keep on winning

The Buddhist temple minutes from Centre Court

It helps a winner keep on winning
Is this the future of flying: battery-powered planes made of plastic, and without flight decks?

Is this the future of flying?

Battery-powered planes made of plastic, and without flight decks
Isis are barbarians – but the Caliphate is a dream at the heart of all Muslim traditions

Isis are barbarians

but the Caliphate is an ancient Muslim ideal
The Brink's-Mat curse strikes again: three tons of stolen gold that brought only grief

Curse of Brink's Mat strikes again

Death of John 'Goldfinger' Palmer the latest killing related to 1983 heist
Greece debt crisis: 'The ministers talk to us about miracles' – why Greeks are cynical ahead of the bailout referendum

'The ministers talk to us about miracles'

Why Greeks are cynical ahead of the bailout referendum
Call of the wild: How science is learning to decode the way animals communicate

Call of the wild

How science is learning to decode the way animals communicate
Greece debt crisis: What happened to democracy when it’s a case of 'Vote Yes or else'?

'The economic collapse has happened. What is at risk now is democracy...'

If it doesn’t work in Europe, how is it supposed to work in India or the Middle East, asks Robert Fisk
The science of swearing: What lies behind the use of four-letter words?

The science of swearing

What lies behind the use of four-letter words?
The Real Stories of Migrant Britain: Clive fled from Zimbabwe - now it won't have him back

The Real Stories of Migrant Britain

Clive fled from Zimbabwe - now it won’t have him back
Africa on the menu: Three foodie friends want to popularise dishes from the continent

Africa on the menu

Three foodie friends want to popularise dishes from the hot new continent
Donna Karan is stepping down after 30 years - so who will fill the DKNY creator's boots?

Who will fill Donna Karan's boots?

The designer is stepping down as Chief Designer of DKNY after 30 years. Alexander Fury looks back at the career of 'America's Chanel'