With 2,000 Carphone Warehouse and 1,154 Dixons stores there is likely to be scope for considerable cost cutting
Dixons and Carphone Warehouse are discussing a £3.5bn merger that could create a powerful new force on the UK high street and a new FTSE 100 retailer.
The proposed deal, bringing household names Currys, PC World and Carphone Warehouse under one umbrella, would forge a retail powerhouse with 3,000 stores and sales approaching £12bn. Analysts warned, however, that the alliance could trigger job cuts and some store closures in the UK.
In a statement released to the Stock Exchange the companies said talks were at a "very preliminary stage and there can be no certainty that a transaction will be forthcoming". The tie-up, which is being billed as a "merger of equals", was well received by investors with Dixons shares closing up nearly 7% at 50.3p while Carphone Warehouse closed up almost 9% at 333p.
Carphone has 2,037 stores worldwide and annual sales of £3.7bn while Dixons has 947 stores and a turnover of £8.2bn. Some experts think the deal makes more sense for Dixons, which has just completed a painful restructuring and is looking for new avenues of growth.
Ben Spruntulis, retail analyst at Exane BNP Paribas, said Dixons would be able to piggyback on Carphone's expertise in selling mobile phones and tablets as well as its relationships with network operators. Dixons has 150 Phones 4U concessions in its stores but would like a bigger slice of the lucrative smartphone market and could hand them over to Carphone when the contract expires next year.
Together, the retailers would have more than 1,200 stores in Britain, and Spruntulis predicted savings could be made through closures and a pooled head office. Both companies have head offices in south-east England, each with annual running costs of £15m-20m.
At the end of last week, Carphone had a market capitalisation of £1.8bn while Dixons, led by chief executive Sebastian James, was valued at £1.7bn. The enlarged group would have an estimated market value of £3.5bn and is likely to be eligible for listing on the FTSE 100.
"No decision has been reached regarding the structuring of any such merger," said the companies, which also held talks in 2011. Under stock market rules, the companies have until 5pm on 24 March to announce whether the tie-up is going ahead. Both retailers are grappling with structural changes in the industry as sales move online and manufacturers such as Apple establish their own successful retail chains. Analysts also point to competitive threats faced by Dixons such as the growth of website AO.com, formerly Appliances Online, which is gearing up for a £1.2bn flotation.
"It is slightly harder at this stage to see what's in it for Carphone," said retail analyst Nick Bubb. "Mergers of equals aren't easy to arrange, because neither is dominant enough to drive through the changes required."
The proposed marriage, revealed by financial blog Betaville, would unite two former adversaries. In 2008, Carphone threw its hat in the electricals ring when it struck a £1.1bn deal with the US electricals group Best Buy to bring the brand to the UK. The tie-up was supposed to wreak havoc for Dixons but ended in failure with the loss-making chain closing down in 2011. It is also back to the future for Dixons, which sold its 300-strong mobile phone chain The Link to network operator O2 for £30m in 2006.
Charles Dunstone, who founded Carphone in 1989 and still owns 23.4%, is said by insiders to be enthusiastic about the deal. If it succeeds, he is expected to chair the enlarged group, with James as chief executive. Such a set-up creates uncertainty for Carphone veteran Andrew Harrison, who took over as chief executive last summer, but he and the deputy chairman, Roger Taylor, are both expected to have senior roles in the new venture.
The deal is expected to involve shares rather than cash, with Dunstone retaining his large holding.
A merger would complete the rehabilitation of Dixons which made its high street debut in 1937 when Charles Kalms opened a photographic studio in Southend. Over 50 years, his son, now Lord Kalms, turned it into a retail empire but, by the end of the last decade, it was struggling to keep pace in a market under siege from the internet.
The financial crisis and the attendant collapse in consumer confidence triggered a major restructuring which culminated with the disposals of the Pixmania website as well as operations in Turkey, Spain and Italy. By the time of its annual results last summer, James was able to say its troubles were finally behind it and that it had made the transition from "survivor to winner".
The merger would also provide both companies with the opportunity for a much needed rebranding. "Carphone Warehouse's name has long been anachronistic because it doesn't sell carphones and it doesn't operate warehouses," said Bubb. "In the same way, it is increasingly odd that Dixons mainly trades as Currys and PC World in the UK."
DixonsBrands: Currys, Dixons Travel, PC World, Elkjøp and Electroworld
Employees: 31,000
Headquarters: Hemel Hempstead
Chief executive: Sebastian James
Sales: £8.2bn (year to 30 April 2013)
Pre-tax profits: £94.5m
Stores: 947 worldwide, in the UK 458
Countries: UK, Ireland, Greece, Sweden, Denmark, Finland, Norway, Iceland, Czech Republic and Slovakia
Carphone WarehouseBrands: Carphone Warehouse, Phone House, 46% of Virgin Mobile France, partnerships with Media Markt and Metro
Headquarters: Acton, west London
Chief executive: Andrew Harrison
Sales: £3.7bn (year to 31 March 2013)
Pre-tax profits: £59m
Stores: 2,037 worldwide (UK 785)
Countries: UK, Ireland, Netherlands, Spain, Germany, Portugal, Sweden
Dixons RetailRetail industryCarphone WarehouseMergers and acquisitionsZoe Woodtheguardian.com © 2014 Guardian News and Media Limited or its affiliated companies. All rights reserved. | Use of this content is subject to our Terms & Conditions | More Feeds |
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