Best Buy sloughs off troubled Musicland

Despite financial loss, investors back decision

Retail giant Best Buy said Monday that it will unload its troubled music and video division Musicland Group to investment firm Sun Capital Partners, which will pony up no cash for the chain but will take over its liabilities.

Move, which was cheered by investors Monday, dramatically reduces Best Buy’s exposure to the increasingly shaky recorded music market, which contracted by almost 10% in the U.S. in 2002, and is shrinking by similar margins so far this year.

But it also marks a hefty financial loss for Best Buy, which first acquired the 1,200-store music retailer in December of 2000, for almost $700 million in cash and assumed debts. Division lost almost $70 million in the most recent quarter.

Best Buy said in its latest annual report that the strategy behind the original deal was to “bring Best Buy’s core competencies in retailing consumer electronics to new consumer segments,” but that it became evident that the business “did not meet our financial objectives.”

The music-retail sector has been on the front lines of the industry’s decline in recent years, with several chains skirting with financial ruin. In January, Wherehouse Music made its second bankruptcy filing; Tower Records and others have been cutting stores and overhead in a bid to hold on.

Wall Street seemed more than happy to see Best Buy cut Musicland loose. The company’s shares moved ahead by more than 5.3% in Monday’s trading to end at just under $44.