Carphone Warehouse’s structure over the years has shifted constantly, but founder Charles Dunstone remains a very smart businessman.

Carphone Warehouse’s structure over the years has shifted constantly, but founder Charles Dunstone remains a very smart businessman.

It is standard practice in business to try to buy low and sell high, but Carphone supremo Charles Dunstone and his management team took this mantra to new levels in their dealings with the American electricals giant Best Buy. Five years ago he sold them a 50% stake in the core business for £1.1bn and he has just bought it back from them for just £471m, which must be one of the “Deals of the Century”.

In the intervening period, a lot of shareholder’s money was poured down the drain in the doomed attempt to introduce the Best Buy “big box” format to the UK market and perhaps it’s best to draw a veil over that venture, but Carphone certainly made good money out of their US joint venture in mobile phones with Best Buy, so the overall equation still stacks up well for Carphone Warehouse. And they retain a buying relationship in mobile phones with Best Buy and the rights to the “Geek Squad” name for their IT advice centres.

Life after Best Buy goes on and Charles Dunstone made clear at the final results presentation to analysts yesterday that a key reason for the timing of the recent deal with Best Buy was that Carphone is keen to have the freedom to make decisions on all the new business opportunities which are opening up, without the need to refer back to their friends in the US.

Mobile phone retailing may seem simple to the management at Carphone, as they have been doing it successfully for over 20 years, but to many people it seems a very complicated business, involving complex negotiations with the key network operators and the management of the lucrative phone insurance and accessories add-on sales. Even the best electrical retailers, like Dixons (do you (remember “The Link” chain?) have struggled to make money in this market.

Mobile phones may have migrated into smartphones and tablets, but Carphone are right to see all this as “connected” and many other retailers are keen to bring their expertise to bear to help their customers understand the dramatic pace of change in the world of communications and computing.

Carphone flagged up yesterday that they are keen to develop their Connected World Services business as a new division, to exploit the vast array of potential partnerships available to them. And two exciting new deals were announced, in the form of joint ventures in the Netherlands and Germany with Media Markt and Metro respectively.

It was known that Carphone was trialling a mobile phone shop-in-shop operation with the giant European electrical chain Media Markt, but it is clear that the relationship in the Netherlands could quickly spread into other countries where Carphone has an existing business of its own. And the success of the similar US joint venture with Best Buy shows that these deals can be very profitable for Carphone.

The transformational deal to buy out Best Buy’s 50% stake in the core business for just £471m (in a mixture of cash and shares) will deliver impressive earnings per share accretion this year, but it also had the happy result of making the “new” Carphone a much clearer business to understand. Before, Carphone had a bizarre-looking P&L with no sales and a lot of profit, but the P&L account will now look normal and with a much more liquid shareholding base Carphone is now a proper retailing stock for the big fund management institutions to own again.

So, Carphone’s structure has changed yet again and its top management team has seen another shuffle, with Carphone Warehouse Europe chief executive Andy Harrison now promoted to be group chief executive, but the shrewd Charles Dunstone is still on the pitch and, with exciting new partnership and ventures in the pipeline, it will be fascinating to see its future progress.

About Nick Bubb

Nick Bubb has been a leading retailing analyst for over 30 years. He is a well-known commentator on UK retailing and is a founder member of the influential KPMG/Ipsos “Retail Think-Tank”.