Shares jump on Carphone and Dixons merger talks
Merger could create a multi-billion pound High Street giant
Tuesday 25 February 2014
Carphone Warehouse and Dixons are considering a merger that would create one of the biggest technology companies on the high street, as both businesses hope to tap into customers’ demands for one-stop shops for all their electrical needs.
Management now have until 24 March to agree a deal or walk away. Carphone Warehouse is keen to expand its range and reach as the market around mobile phones, tablets and computers becomes blurred, while Dixons, which operates as Currys PC World, wants to increase its mobile phone offering and to build on the customers it gained following Comet’s demise.
Analysts and investors welcomed the deal, as shares in both companies soared. Dixons closed up 6.7 per cent at 50.3p and Carphone Warehouse was up 8.8 per cent at 333p. The merged company would be worth more than £3.5bn and has the potential to dominate parts of Europe.
Dixons currently controls 22 per cent of the electricals market in the UK, 11.1 percentage points more than its next biggest rival Argos, according to analysts at Verdict. The electricals market is expected to grow by 3.3 per cent this year – the highest rate of growth since the recession.
Both companies remained tight-lipped, confirming only that discussions were taking place; however, Dixons boss Sebastian James said: “We’ve said for some time we’ve wanted to get into the phone market and this is one of four options we’ve seen... We can’t say who approached who, but obviously it’s a small industry and we all know each other well.
“We already have concession with Phones 4u in our stores, which are great, but we have always said we need to expand into the phone market even more.”
It is understood the Phones 4u contract is coming to an end later this year.
Carphone Warehouse founder Sir Charles Dunstone declined to comment when contacted by The Independent, but he did not rule out suggestions that he would become chairman of any merged business.
Matt Rubin, a retail analyst at Verdict, said the deal seemed like a natural fit. He said: “For Carphone Warehouse, it is becoming hard to distinguish between mobile phones, tablets and laptops, which are all merging into one and could continue to go even further in that direction.
“Meanwhile, Dixons has said it wants to improve its phone offer and could also take advantage of Carphone Warehouse’s store portfolio to extend its click-and-collect offer.”
For Carphone Warehouse, the deal could be seen as similar to a joint venture with Best Buy, when the phone service was installed in the US company’s stores. It was eventually bought out by Best Buy for more than £800m and proved highly successful.
But a similar project to launch Best Buy in the UK failed. The man who oversaw the deal with Best Buy was Andrew Harrison – who was subsequently promoted to chief executive of Carphone Warehouse and made clear that he wanted to form similar partnerships elsewhere.
More recently the phone company, founded from a basement flat in 1989 in London, has launched its Connected World business as bosses recognise that customers are keen to use staff’s knowledge and expertise to hook up all their electrical devices over wi-fi, controlled by their smartphones.
Dixons has also focused on its similar Know How business, which aims to advise customers on how to get the most from their computers and tablets, and offers software and hardware support. The company could also benefit from Carphone Warehouse’s high levels of customer service, which has historically lagged at Dixons.
A link up with Carphone Warehouse and Samsung, for the former to run phone stores for the South Korean mobile giant, could also interest Dixons, which is always keen to form closer relationships with big suppliers – especially Apple rivals because of the low margins made on Apple products by third-party retailers.
Analysts have also suggested that a deal could help douse the flames of excitement from online white goods appliance seller AO.com joining the stock market. Some investors had feared Dixons could lose out from the competition – yet a deal with Carphone Warehouse could see those worries washed away.
A recovery in the housing market – mortgage approvals are at five-year highs – would also be attractive to Carphone Warehouse, with the boost in sales expected at Dixons.
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