Carphone sells 50 pct stake to Best Buy

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Europe's biggest independent mobile retailer Carphone said the deal would give both groups a 50 percent stake in the new company, which will comprise its 2,400 stores, and aim to meet the growing appetite for consumer electronics.

The proceeds of the sale will be used to pay down Carphone's debt and for investment in its remaining broadband and fixed-line business and infrastructure. Carphone has said it will consider making a bid for broadband operator Tiscali.

The announcement follows months of speculation about a tie-up between the two companies after Best Buy took a small stake in the company. They also have a joint venture in the United States.

"We are joining forces with a leader in consumer electronics retailing to enter a major new market together," Carphone Finance Director Roger Taylor said in a statement.

"Best Buy's track record of value creation speaks for itself. In addition, the proceeds from the transaction give us the power and flexibility to maximise the value of our fixed line business and enhance its scale and profitability."

Shares in Carphone Warehouse were down 3.2 percent at 8:20 a.m. after they rose over 6 percent on Wednesday on Best Buy speculation.

REDUCE DOWNSIDE RISK

"We believe this is a positive move," Landsbanki analyst Dan Gardiner said in a note to clients. "We saw the distribution business as facing significant challenges and the value, once working capital outflow is factored in at significantly below this current price.

"Whilst this does not eliminate these problems and we believe that the move into consumer electronics is unlikely to offer the same returns as the existing handset distribution business this does effectively reduce the downside valuation risk."

The transaction will be subject to approval by Carphone shareholders but directors of the company have unanimously agreed to vote in favour of the resolution to be held at the extraordinary general meeting scheduled to take place by early August.

Carphone's retail business generated earnings before interest, tax, depreciation and amortisation of 263 million pounds and an operating profit of 177 million pounds on revenues of 2.9 billion pounds in the year ended March 2007.

Bob Willett, the chief executive of Best Buy International and Chief Information officer, is expected to be chairman of the new venture, and Taylor will become chief executive in addition to retaining his existing duties.

The business will be overseen by a board comprising equal numbers of Best Buy and Carphone executives, including Charles Dunstone, Group CEO.

(Reporting by Kate Holton; Editing by Stephen Weeks)