Best Buy (BBY) to Sell its Five Star China Business
Shares of Best Buy Co. Inc. (BBY), were trading up +0.65 or +1.80 percent to $36.69 per share in Thursday's premarket, after the company announced early this morning that it would be selling its Five Star business in China for an undisclosed amount. According to Best Buy, the sale will have little impact on the company's overall operations and will allow the company to concentrate on its business in North America.
Founded in 1966 as an audio specialty store, Richfield, Minnesota based Best Buy Co. renamed in 1983 concentrating more on consumer electronics. The company is the world's largest retailer of consumer electronics products operating over 1,100 stores domestically, as well as more than 100 Best Buy Express automated retail stores operated by Zoom Systems in malls and airports. Best Buy's U.S. brands include, Best Buy Mobile, Magnolia Audio Video, Geek Squad, and Pacific Sales; in Canada, Cell Shop, Connect Pro, Geek Squad, and Future Shop and in Mexico, Best Buy, Best Buy Express, and Geek Squad.
Best Buy entered the Chinese market in 2006, with the purchase of a majority interest in Jiangsu Five Star. Best Buy's Five Star business currently operates 184 stores in China and will be sold to a real estate development firm known as the Zhejiang Jiayuan Group.
Hubert Joly, President and Chief Executive Officer of Best Buy said in the company's press release that, "Over the last two years we have worked to improve our business in China and are proud of the progress we have made there. We were recently approached by Jiayuan Group, a respected Chinese investment group, which offered to acquire the business with plans to further expand it. The Jiayuan Group has agreed to work with Five Star Chief Operating Officer Yiqing Pan, who will become chief executive officer of Five Star.
He reiterated that, "The sale of Five Star does not suggest any similar action in Canada or Mexico. Instead, it allows us to focus even more on our North American business. We will also continue to invest in and grow our China-based private label operations, with brand names that include Dynex, Insignia, Modal, Platinum and Rocketfish.
While terms of the agreement were not disclosed, The Wall Street Journal reported a possible sale of Five Star by Best Buy several months ago. According to the Journal, Five Star was worth approximately $300 million.
The sale of Five Star was suggested when Best Buy sold its European interests last year, liquidating its stake in Carphone Warehouse Group. The company sold its investment in Carphone for less than half of its initial cost.
The sale of Five Star is subject to regulatory approval and is expected to close by the first quarter of 2016. Best Buy stock is trading at the higher end of its yearly range after trading as low as $22.15 earlier this year. Investors are showing optimism for the sale in this morning's premarket trading, as well as positive comments from analysts for Best Buy's prospects for the holiday shopping season.
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