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04/30/2013

News / Best Buy sells European joint venture stake

Consumer electronics giant Best Buy announced its exit from the European market Tuesday, causing the prices of its shares to go up by 7.6 percent. Best Buy is selling its 50 percent stake in a $5.5 billion joint venture with UK-based Warehouse Mobile that operated some 2,400 small stores in eight European countries.

“We concluded that the timing and economics were right to enter into this agreement,” Best Buy CEO Hubert Joly stated, as quoted by The St. Paul Pioneer Press. Joly added that selling the stake would allow Best Buy to simplify its business and strengthen its balance sheets.

Joly also tried to dispel any rumors about the potential sale of its other chains abroad, particularly the Five-Star brand it uses to operate in China.

“Each international market is different and the sale of our European operations should not suggest any similar action in our other international businesses.”

Best Buy has already closed its big-box shops in China, Turkey and the United Kingdom.

Best Buy’s exit from the European market was cheered by Wall Street, with Best Buy’s shares jumping up 7.6 percent, or $1.85.

“We like the sale of Best Buy's 50 percent stake in Best Buy Europe to Carphone Warehouse,” Jeffreys analyst Daniel Binder noted. “The valuation was on the high end of our expectations.”

A Deutsche Bank analyst upgraded Best Buy’s shares to a buy, while Stifel analyst David Schick wrote that Best Buy was getting paid to remove a negative, since its European stores had been losing money for several years.

US-based consumer electronics giant Best Buy paid $2.1 billion to purchase its stake in the European market five years ago. The same stake is now being sold for a meager $775 million, a fraction of its initial price. Best Buy’s presence in Europe was marred by the global economic recession, as well as the ongoing European debt crisis, all of which caused consumer demand to be significantly lower than what Best Buy had been expecting.


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