How the deal was financed and the story behind it

How the deal was financed and the story behind it

Carphone paved the way for today’s deal with Best Buy by separating its retail and fixed line telecoms businesses last month.

A joint venture between Carphone and Best Buy was set up in 2006 and has been rolling out mobile phone retail stores under the Best Buy Mobile brand in the US ever since.

In September last year Best Buy bought a 3% stake in Carphone. Today’s transaction has been structured to create a new company into which Carphone's retail business will be placed, with Best Buy acquiring a 50% share of the new entity.

Carphone has been keen to grow its separate fixed line broadband business which it can now do with the £1.1bn, while buying into Carphone will allow electronics retailer Best Buy a chance to get into the £90bn European electronics market.

How the deal is financed

Best Buy has raised £1.1bn through a combination of cash, existing bank finance and other new borrowing.

At the end of its fiscal 2008, Best Buy had cash and cash equivalents, and short-term investments of £766m.

The money is expected to be paid in instalments to Carphone which will be used to bring down the company’s debts – listed in March 2008 as being £840m.

In addition it will be used for investments in Carphone’s fixed line broadband business.

How the deal affects Carphone

The deal leaves the existing ownership structure of Carphone Warehouse, including Mr Dunstone's large stake of just over 30%, unchanged.

On completion of the deal the new venture jointly owned by Best Buy and Carphone will include all Carphone’s retail stores, its mobile airtime reselling operations, and its insurance operations as well as its economic interests in Best Buy Mobile in the United States, and the Geek Squad in the UK and Spain.

The transaction excludes Carphone's UK fixed line operations, its share in Virgin Mobile France and its major freehold properties.

What happens next

The deal is conditional on Carphone’s shareholders passing an ordinary resolution approving the transaction at its extraordinary general meeting expected to take place by early August 2008.

It is also conditional on approval of the change in corporate controller from the Financial Services Authority, and on Carphone completing the reorganisation of its corporate structure to create a new holding company for the retail assets.

The transaction is expected to close during Best Buy's fiscal second quarter, which concludes on 30 August 2008.

The deal does not require the approval of Best Buy's shareholders. 

Written by Mobile Today
Mobile Today

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