CHICAGO--(BUSINESS WIRE)-- Fitch Ratings does not anticipate any rating implications for Best Buy Co., Inc. from its $1.3 billion (approximate) purchase of Carphone Warehouse Group plc's (CPW) contractual interest in the Best Buy Mobile profit share-based management fee paid to Best Buy Europe, a joint venture between Best Buy and CPW (each 50% owner). A full rating list is shown below.

Best Buy announced that it will pay approximately $1.3 billion in cash to purchase CPW's contractual interest in the Best Buy Mobile profit share agreement. The Best Buy profit sharing agreement is a profit based management fee agreement under which Best Buy makes payments to Best Buy Europe, which is 50% owned by CPW. Fitch estimates that Best Buy Europe's profit share in BBM is roughly 50%, equating to Best Buy's purchase of the 25% of BBM profits that it does not currently receive. As such, Best Buy's purchase of CPW's contractual interest in the profit share agreement will result in Best Buy owning all interests in respect of Best Buy Mobile in the U.S. and Canada.

Fitch expects that the transaction will be funded with excess domestic and international cash. As of the end of its most recent quarter (Aug. 31, 2011) Best Buy had $2.1 billion in cash and short-term investments on its balance sheet. There is no expectation that the company will tap its revolving credit facility. No assumption of debt is associated with the transaction, and Fitch does not expect any material change to Best Buy's leverage profile, which stood at approximately 2.7x for the LTM period ending Aug. 31, 2011. While the transaction will materially reduce the cash balance, recent cash balances of over $2 billion were far higher than historical year-end levels that averaged $1.1 billion over the last three years. Fitch expects that year-end cash balances for the upcoming year will be lower than this historical average. However, Fitch believes that there remains adequate liquidity and operating cushion at post-transaction cash balances.

As part of the announcement, Best Buy stated its intention to close the 11 big-box format stores in the UK. This closure will likely give rise to restructuring costs, although Fitch does not expect the cash portion to be a material figure when measured against total company EBITDA or FCF.

These transactions notwithstanding, Fitch believes that the company faces headwinds around same store sales, market share and competition that are more pronounced than other 'BBB' rated retailers with similar leverage. The ratings continue to reflect Best Buy's solid free cash flow (FCF) generation of over $1 billion, ample liquidity and reasonable leverage profile.

Fitch rates Best Buy as follows:

-- Long-term IDR 'BBB-';

-- Bank credit facility 'BBB-';

-- Senior unsecured 'BBB-';

-- Convertible subordinated debentures 'BB+.'

The Rating Outlook is Stable.

Additional information is available at 'www.fitchratings.com'.

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Senior Director
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Senior Director
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