Best Buy Spikes on Divestment from European Partnership

Michael Teague  |

Shares for Best Buy (BBY) surged throughout the day to as high as $26.92 before stepping back to $25.96, an increase of 7.27 percent, on news that the company had finalized an agreement to sell 50 percent of its stake in Best Buy Europe.

Best Buy Europe is the company’s joint venture with the European retail telecom service provider Carphone Warehouse Group plc that began in 2008. The $775 million sale is comprised of $650 million in cash and $125 million in stock, while Best Buy has agreed to pay some $45 million to take care of outstanding obligations from existing agreements related to the Global Connect partnership.

The sale has been approved by the boards of both companies, and is expected to close by June of this year. It comes at a time when Best Buy’s new CEO Hubert Joly is in the process of implementing what has so far been a successful turnaround strategy that has focused on simplification of operations and cost cutting.

Earlier in the year, Joly dealt with increasingly devastating competition from online retailers such as (AMZN) by offering customers an aggressive price-matching policy, ostensibly in order to get a handle on the phenomenon known as show-rooming, when customers use brick and mortar retailers to test out products they later intend to order online for a cheaper price.

Best Buy and other brick and mortars are also expecting some measure of reprieve from online competition if and when upcoming online sales tax legislation, currently making its way through the House of Representatives, is signed in to law.

Joly has also overseen an expanded partnership with Samsung, whereby the increasingly dominant maker of smartphones and other mobile and computer products will operate its own stand-alone shops within Best Buy’s stores throughout the country. After hitting a low point late in 2012, with shares hovering just above $11 in December, the company has bounced back in 2013 and is up over 104 percent since January 1st.

With recession beginning to look like a permanent or at least indefinite feature of the European Union economy, interspersed as it has been with not-infrequent political/economic shocks such as the Cyprus bailout fiasco and the months-long political deadlock over the formation of the Italian government, it is unsurprising that investors rewarded the company’s shares after the move.

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