Carphone set to open Best Buy stores as it splits in two

TalkTalk broadband unit to be hived off into separately listed company

Carphone Warehouse is to split its retail and broadband internet operations into two separately listed companies, as its joint venture with the US electronics group Best Buy revealed it had all but signed off lease agreements to open five big electricals stores in the spring of 2010.

Charles Dunstone, the chief executive of Carphone Warehouse, declined to set out a timeline for the demerger – which will split its TalkTalk broadband business from its 2,400 retail stores, which will become part of the Best Buy Europe joint venture – but the cost and reallocation of the group's £925m credit facility is likely to delay the split until next year.

He added that the "operational separation of the two businesses has already effectively been achieved".

The confirmation of the widely expected demerger came as Carphone Warehouse, which has net debt of £180m, posted a robust fourth-quarter trading statement and said it would meet market expectations for full-year headline profits.

Mr Dunstone will become the chairman of each of the demerged businesses, but major shareholders will be consulted on the break-up. The dual role may raise some eyebrows in the City, as best-practice corporate governance procedures argue against one person holding more than one FTSE 100 chairmanship. But both companies are likely to be members of the FTSE 250 index, in which case the split should not be an issue.

Andy Wade, analyst at Numis Securities, said: "I cannot see after all these years and with his intimate knowledge of both businesses how he could not be involved in both of them."

Both businesses now have markedly different investment profiles, limited synergies and actually have some conflicts of interest, given that the retail division works with mobile service providers, offering impartial advice to customers, while TalkTalk competes against the same providers.

Best Buy Europe yesterday put further flesh on the bones of its eagerly anticipated, but delayed, launch of the first of Best Buy's electrical stores in the UK next spring. Roger Taylor, the chief executive of Best Buy Europe, said it had internally signed off lease agreements on five UK sites, which are now set to open in quick succession next year.

However, Best Buy Europe declined to provide dates and locations. It did reveal that UK retail rents had plummeted to a level that were on a par with those in the US, whereas previously they have been twice as high on these shores.

A Carphone Warehouse spokesman said: "These stores will be effectively launching on US rents."

He added that the lower UK rents on stores sized between 30,000 and 50,000 square feet will be equal to about a 2 per cent improvement in gross margins.

The group wants to open about 100 Best Buy stores in Europe by 2013, of which it expects between 60 and 70 will be in the UK.

In response to the threat from Best Buy, DSGi, the owner of Currys, is to open five major stores this year after a successful trial at Junction 9, near Birmingham.

Yesterday, Best Buy Europe said its mobile phone connections jumped by 12 per cent to 3 million over the three months to March 2009.

Its pre-pay connections soared by 20 per cent, while subscriptions were up by 2 per cent to 1.1 million, helped by continued strong demand for the iPhone, other smartphones and for mobile broadband.

TalkTalk added 74,000 net new broadband customers, taking its total subscriber base to 2.8 million. Carphone said it had increased its operating free cash flow across its divisions to £150m, which was welcomed by investors.

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