While much of the British electronics retailing industry struggled throughout the recession, mobile phone companies have been faring rather better. The unveiling of plans for a 4G data connection in the UK, as well as the release of the iPhone 5 and Samsung Galaxy models, has meant that consumers have been keen to keep their smartphone technology up to date – giving mobile phone retailers something to smile about even as sales dropped in other sectors.
Now it has been revealed that the Carphone Warehouse Group is considering buying out its partner, US company Best Buy, in the European venture launched by the companies. This has been made possible due to a bid being placed on Best Buy in the United States, thus opening a clause in the contract held with the Carphone Warehouse Group which allows it to buy out the 50 per cent of the European business it does not own at a discount of 10 per cent.
Founder of Best Buy, Richard Schulze, is the current bidder for the business, after being removed as chairman in June of this year. He has until the end of this month to formally bid on the company, with experts predicting that his bid will amount to less than $8 billion, or £5 billion. Should this bid be accepted, Carphone Warehouse will then be able to proceed with their aim of buying back the 50 per cent stake in their business which is currently owned by Best Buy.
The deal between the two companies was made in 2008, when Carphone Warehouse founder Charles Dunstone sold 50 per cent of the Carphone Warehouse Europe business to Best Buy for £1.1 billion.
However, the value of the business has deteriorated somewhat in the years since the sale, with the value of Best Buy’s stake in the business now estimated to be worth around £600 million. This is largely due to on-going troubles in the Eurozone, especially in countries such as Spain, Greece and Italy, where consumers are becoming increasingly reluctant to spend on non-essentials.
Yet analysts predict that, should the sale of Best Buy’s share go ahead, the Carphone Warehouse Group would be able to further discount the price they pay back to Best Buy by around £50 million, taking the total value of Best Buy’s stake to £550 million. This is exactly half of what the US company paid for the 50 per cent stake four years ago.
Roger Taylor, chief executive of Carphone Warehouse, said; “If it was a sensible value, I would be very surprised if the board and shareholders didn’t want to take it.
“It is not like buying something where there is an inherent risk – it’s already our business.”
News of the potential purchase came as the Carphone Warehouse Group revealed excellent first half sales which defied the predictions of experts at the beginning of the financial year. Like for like sales rose by 1.6 per cent, which is particularly impressive given that the prediction was for a 2 per cent drop.
As a result, first half pre-tax profits were boosted by 30 per cent to £8.6 million when compared to the same period last year, which has largely been attributed to increasing competition between network operators. As prices have fallen due to providers dropping prices, more and more consumers have purchased contract smartphones, thus opening the door for even higher profits in chains such as the Carphone Warehouse.
Do you think the Carphone Warehouse Group would be wise to go ahead with their purchase if the opportunity arose, given the unstable financial platform in mainland Europe at the moment?
Why do you think the mobile phone sector of the electronics retail industry has thrived while so many other areas, such as television and household electronics, have fallen by the wayside?
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