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Carphone’s plans for merger with Dixons backed by analysts

Alex Yau
March 12, 2014

Combined company would be valued at about £3.5 billion and have 1,300 outlets nationwide

Analysts have thrown their backing behind the proposed merger between Carphone Warehouse and Dixons Retail, after the two companies confirmed they were in discussions.

When completed, the deal would create a combined company valued at around £3.5 billion. The mobile retailer operates 800 stores in the UK while Dixons has an estate of around 500 stores across its brands, Currys and PC World. Under stock market rules the two companies must confirm their intentions by March 24.

The attraction for both retailers is the ability to offer connected devices across mobile and consumer electronics under one roof. Despite Phones 4u already being present in Currys/PC World stores, it is Carphone Warehouse that has emerged as the frontrunner, and the deal is one that analysts believe makes a lot of sense.

“I think a better fit, before this was put together, might have been Dixons and Phones 4u, because Phones 4u provided the contract sales in Dixons’ stores,” chief of research at analysts CCS Insight Ben Wood told Mobile News.

“It makes sense for a telecoms company to feed into a consumer electronics group, when mobile is starting to become a much more important part of every single person’s everyday life.”

The two companies had explored a merger in 2011 but talks faltered over the terms of the deal. Since then, ex-Dixons Retail executive Carl Cowling has joined Carphone as head of its global partnerships division, and he is believed to be spearheading the new talks on behalf of the mobile retailer.

Change of attitude
Wood says that the business landscape has shifted to the extent that any of the issues that blocked the deal three years ago are likely to be ironed out. “The onslaught of the internet, particularly for consumer electronics, has changed the attitude of Dixons about how they’d like to go to market,” adds Wood.

The merger would create in excess of 1,300 stores across the country, but head of retail at Investec Kate Calvert told Mobile News that there is unlikely to be major structural changes if a deal takes place.

“Dixons already has a store rationalisation policy in place to bring its stores from 500 to about 380 to 400 in the UK,” she said.

“Carphone is quite good at churning its sites, and realistically there isn’t a huge amount of overlap, so I wouldn’t expect huge synergy benefits in that area, because there isn’t a huge overlap.”

On speculation that the Competition Commission may become involved, both analysts agreed that while Phones 4u may be annoyed at being elbowed out of Currys/PC World stores, the lack of a similar product portfolio means the regulator is highly unlikely to even investigate the deal.

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