Best Buy purchases Future Shop in $580 million spree

Canada’s largest consumer electronics retailer announced Tuesday an agreement to be acquired by Best Buy Co. Inc. for $580 million.

The Eden Prairie, Minn.-headquartered company has offered $17 for each Future Shop Ltd. share, an increase of a 48 percent on Monday’s closing price on Toronto Stock Exchange. The deal is expected in late September.

Richard Schulze, chairman and CEO, called the acquisition a huge win for Best Buy and its shareholders and “will accelerate our plans to expand into Canada by several years.”

Early this year Best Buy announced it would open 15 stores by the fall of 2002 and launch another 50 by 2005. It had also entered in several lease agreements for the properties. Schulze said it will evaluate all the existing lease commitments, including the ones signed by Best Buy, to optimize the future store growth plans.

“We deemed this acquisition to be truly the most effective way to enter this market for two principle reasons. First, we have a lot of respect for the Future Shop business and its management team,” said Schulze.

“Secondly, we believe acquiring Future Shop accelerates our goals for store count, revenue and market share in Canada. We expect it to be immediately accreted to our earnings, increasing the value of the Best Buy enterprise while reducing risk.”

Best Buy operates 434 stores in the United States and it plans to open between 60-65 stores a year over the next four years in the U.S. Burnaby, B.C.-based Future Shop operates 88 stores and has about 7,000 employees.

Despite the slumping technology market, Future Shop is a company on the rise. Darren Jackson, Best Buy senior vice-president of finance, cited operating profits that tripled to more than $51 million the last two years and total store sales that grew at 16-plus per cent compound annual growth rate over the last three years.

While Schulze said it expects to manage Future Shop as a separate subsidiary of Best Buy headquartered in Canada and doesn’t expect to alter the product mix, store or management, changes are on the way as part of Best Buy’s bid to become a global brand.

Toronto-based J.C. Williams Group retail consultant Steve Boase said the Future Shop brand name will be gone in about two years. He called it a necessary step as part of Best Buy’s global expansion. This doesn’t mean, however, all other players will be wiped out. “There’s always going to be those regional players,” he said.

This is the second time this year Future Shop has been involved in a large-scale acquisition, though this time it is on the other side of the fence. In January it submitted an approximate bid of $200 million for 100 per cent of Chapters Inc.’s shares. Future Shop withdrew its offer a month later after being unable to secure 66 per cent of the outstanding shares.

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