Analysts’ mixed reaction to Carphone and Best Buy deal

Analysts’ mixed reaction to Carphone and Best Buy deal

Retail and telecoms analysts today gave differing views of how they feel about the Carphone and Best Buy deal.

JP Morgan’s telecoms team said the deal raises concerns on several levels.

Analyst Jerry Dellis said: ‘Investors have several reasons to be concerned about the proposed deal, in our view.

‘The aim of the deal is to build a broader footprint in consumer electronics. Carphone Warehouse is already diversifying from phones to laptops. Today’s announcement suggests a shift towards more commoditized products than Carphone has historically dealt in.

‘Consumer electronics retailing is a sector under extreme pressure as evidenced by recent DSG profit squeeze.

‘Pricing is the clear differentiator, not the advice model Carphone has historically run. Carphone and Best Buy say they want to build larger format stores, which would seem to buck an industry trend towards internet distribution.’

He added: ‘We also have Concerns regarding the use of proceeds. Carphone will use £1.1bn to pay down debt (£840m as at March 2008) and invest in broadband infrastructure and new areas of growth.

‘If Carphone were to buy Tiscali’s UK business, the new group would remain heavily geared for the foreseeable future.

‘The statement in today’s press release that proceeds will be invested in broadband infrastructure could also be read as an acknowledgement that CPW needs to be ready for fibre deployment. Hence today's deal takes on a defensive angle.’

But one city analyst told Mobile: ‘We think it is a great deal. It makes a lot of strategic sense giving the opportunity for Carphone to expand its retail broadband while allowing Best Buy a foothold into Europe.’

And Dan Gardiner, telecoms analyst at Landsbanki, said it was a ‘positive’ move which would help Carphone Warehouse deal with the increasingly tough mobile phone and telecoms market.

However, he said that the move into consumer electronics is unlikely to offer the same returns as the existing handset distribution business but this does effectively reduce the downside valuation risk.

He said: ‘It also reduces debt, which we think was becoming problematic and frees up capital to invest in the (fixed line) telecoms business..’

Written by Mobile Today
Mobile Today

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