Best Buy Heads for China

The electronics retailer snaps up Five Star.
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Best Buy (BBY) - Get Report agreed to pay $180 million to take a majority interest in Jiangsu Five Star Appliance, China's fourth-largest appliance and consumer electronics retailer.

Minneapolis-based Best Buy said the investment includes a $122 million capital infusion. Five Star's employees and management will continue to hold the balance of the company. The transaction is expected to be neutral to Best Buy earnings in fiscal 2007.

Best Buy said the deal will provide Best Buy with an immediate retail presence in China through Five Star's 136 stores throughout eight of China's 34 provinces. The transaction has received the necessary Chinese government regulatory approvals, including a business license that was granted Thursday. The transaction is expected to close next month.

"Best Buy is pleased to be entering China's retail market with Five Star's management team as our partners. They are strong leaders with considerable customer insights and strong local networks. We are very encouraged by the relationships that have already been forged between our two companies," said Robert Willett, CEO of Best Buy International. "This relationship complements our other efforts to learn about the Chinese retail environment. In addition to our new work with Five Star, we are moving forward with our plans to open our first Best Buy retail store in China this year."

Five Star was founded in 1998 as a wholesale business and opened its first retail store in Nanjing in 2001. Five Star has more than 12,000 company employees, and headquarters in Nanjing, Jiangsu. Five Star's current management team, including the company's founder, will remain with the company. Five Star's stores will continue to operate under the current brand.

Five Star's 2005 revenue was nearly $700 million, an increase of more than 50% from the prior year. Five Star's most significant product categories include air-conditioning, video and audio products, appliances, and digital communication devices.