Margareta Pagano: Carphone Warehouse's US connections ring all the right bells for Dunstone
Best Buy deal to 'revolutionise' European electronics retailing
Sunday 11 May 2008
This could be the time to start betting on Charles Dunstone again. Shares in Carphone Warehouse, look cheap after they fell to 270p last week after the mobile tycoon announced a brilliant tie-up with Best Buy, the giant US electronics retailer.
Dunstone has already made himself and investors a fortune with his vision that we would all want mobile phones. Now could be the time to bet on his latest vision for an even more "connected world'' where laptops and phones are one. Put simply, Carphone Warehouse and Best Buy are creating a Newco into which Dunstone is putting all his 2,400 shops in return for half of the company, yet to be named. Best Buy, which has more than a 1,000 superstores in the US, will then add the stores which it will begin buying in Europe, starting in the UK next year. Carphone and Best Buy are convinced they can revolutionise the European electronics market which is worth about £90bn a year in sales.
They think they can do a better job of electronics retailing than the current players. In Britain, the market is dominated by DSG, which owns Curry's (the old Dixon's) and Comet, in Germany by MediaMarkt and in France by fnac. Dunstone's timing is particularly irritating for DSG's new chief executive, John Browett, who is due to give investors a glimpse of his trading strategy later this week.
Dunstone and Best Buy's ambition does look a little risky as electronics retailing is already tightly squeezed, but Best Buy wants to export its advice-style retailing across the continent. It certainly has the buying power to do so with sales of $40bn (£20.5bn) and pre-tax profit of $2.2bn last year. It takes the view that building its 40,000 sq ft stores in the economic downturn could be propitious as property will be cheaper while the market for personal computers, games and music gadgets is proving pretty inelastic.
As part of the deal, Carphone Warehouse gets £1.1bn from Best Buy which will wipe out its debt, leaving it with cash to spend on broadband and telephones. This means the company is now essentially a mobile telephony business owning TalkTalk, AOL UK and other services. Dunstone is already Britain's third-biggest provider of fixed-line internet access but wants to continue expanding. A bid for Tiscali, the fourth biggest player, which could cost around £500m, now looks almost certain.
Dunstone has had a lot of stick over the past few years, mainly because of the disastrous roll-out of TalkTalk , mounting debt and criticism from customers over services. Some analysts are suggesting that this latest deal means he's getting out of retail and has put his telephone business up for sale. Don't believe it. What this deal does is the reverse – it's a story of expansion.
Dunstone's American tie-up looks clever because in one stroke it solves one problem and creates two new advantages. First, he's raising cash to lower his leverage. Secondly, he seems to be acknowledging past mistakes, accepting that he needs outside expert help to build a strong retail consumer brand and is letting Best Buy take the management lead of Newco. Third, he can concentrate on what he understands best, which is bringing broadband and telephone together. Dunstone also still owns a third of the business, so his own money is on the line for this latest step. I can't say when the shares will recover to the 340p they reached earlier this year, but they do look a buy.
What I can tell you is that there are a lot of people in Wendens Ambo, the village in Essex where Dunstone grew up, who still curse themselves for turning down his invitation to invest in his start-up nearly 20 years ago. Villagers still recall the young Dunstone asking them in the local Bell pub whether they wanted to invest. None of them did. It was his grandmother who put up the money.
He did the right thing being honest. Now BA's boss should forgo his bonus
If Willie Walsh, the embattled chief executive of British Airways, is smart, he will tell the world on Friday that any bonus he is due will either be given up or put in escrow for a year or so. It's the only decent thing for him to do following the Terminal 5 fiasco, and the best way for Walsh to win back some friends and even put off potential enemies who are still calling for his head.
Walsh is due to announce record profits on Friday for the last quarter, despite the costs involved in the disastrous opening of T5 in March. So far, BA has said it lost £16m, but this is likely to be higher.
Along with other senior managers, Walsh is due performance-related bonuses if the airline meets certain targets. In Walsh's case, he is entitled to a 150 per cent bonus of his £700,000 salary if the airline reaches a minimum threshold of a 10 per cent profit margin. With record profits of £870m forecast by analysts, the airline will just about meet these operating margins.
Other criteria include punctuality (for the planes, not his own), which, like profit margins, can be measured. But they also include employee endorsements and customer recommendations – far more subjective assessments which no one could honestly say have been met this year.
Throughout the disaster, Walsh has been as honest as he could, admitting that BA and BAA made a complete hash of the opening. He went further last week at the Transport Select Committee by conceding that it was a risk opening the terminal when it did – and he should be applauded for his honesty. However, neither he nor the other senior executives should be rewarded with a bonus.
BA chairman Martin Broughton and the board meet on Thursday ahead of the results. It's their job to demand the bonuses are put into escrow for at least a year so that BA can demonstrate T5 is working properly and is no longer an international joke. That would be fair; anything else will see the institutions rip into Walsh.
It's right that T5 doesn't cost him his job, but if he took the bonus then he should lose it.
A lady who lists: Tara and the hottest exchange in town
Tara Palmer-Tomkinson is proving to be as good at organising parties as she was at going to them. The former It girl and friend of the Royals, who launched the Three's a Crowd events business last November, is behind two of London's biggest parties. Last night it organised the charity gala at The May Fair with Bryan Ferry and Jonathan Ross, and tomorrow it is hosting the Sex and the City Party. IT has more in the pipeline.
Three's a Crowd is one of 220 quoted companies listed on Plus Markets, London's newest exchange. Figures out tomorrow will show that the exchange had a fantastic April with 1.9 billion shares being traded, worth £3.1bn. Plus continues to strengthen market shares across all sectors and is taking business from the London Stock Exchange. It now trades in more than 380 small and mid-cap companies listed on the LSE. And in one FTSE 100 company – Alliance Trust – Plus did 10 per cent of the month's trading.
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