Dixons, Carphone Warehouse in £3.8bn merger - but why?

Dixons and Carphone Warehouse merger

Analysts 'sceptical' over deal amid competition concerns and rumours of store closures

LAST UPDATED AT 11:00 ON Thu 15 May 2014

ELECTRICALS retailer Dixons and mobile phone store Carphone Warehouse have announced that they will become one company in a merger valued at £3.8bn.

Shareholders of each company will split ownership of the new firm, which will be known as Dixons Carphone Plc.

Sir Charles Dunstone, Carphone Warehouse's co-founder, chairman and 23.5 per cent shareholder, will chair the group.

Carphone Warehouse is Europe's biggest independent mobile phone retailer, operating more than 2,000 stores. Dixons is the second largest electricals merchant in Europe and controls more than 500 Currys and PC World stores in the UK and Ireland.

Dixons released a trading statement on Thursday predicting that it would be "at the top end of market expectations" for full-year underlying profit before tax at £150m to £160m, Reuters reports.

Sebastian James, chief executive of Dixons, said: "The ability to take what we have built in electrical retailing and add the profound expertise of Carphone Warehouse in connectivity would make us a leading force in retailing for a connected world".

He added: "Together we can create a seamless experience for our customers that will enable technology to deliver what it promises - that is, to make their lives better."

BBC business editor, Kamal Ahmed, says that Dixons and Carphone Warehouse are gambling on the so-called "internet of things" becoming a "consumer force" in the near future: "In 10 years' time, our phones will be connected to our fridges which can also speak to the washing machine or the oven. The best positioning, Dixons Carphone will claim, will be those retailers which sell the lot."

Carphone stores, which tend to sit on high streets, could also become convenient click-and-collect locations for Dixons goods, Ahmed suggests.

But City analysts have "struck a sceptical note" over the merger, The Times says, due to questions over what Carphone warehouse stands to gain from the deal. Retail analyst Richard Hyman, said it looks like a "defensive" move by both parties. Financial services firm Cantor Fitzgerald added that it is likely that competition regulators will need to look at the deal.

There were also concerns that overlap between the two businesses could lead to store closures.

This morning Sir Charles sought to reassure employees and investors over doubts about the merger: "We have a deep respect for each other and see the merger of these two great companies as an opportunity to bring our skills together for the consumer and create a new retailer for the digital age. We are also creating jobs and we see many opportunities for further growth." · 

For further concise, balanced comment and analysis on the week's news, try The Week magazine. Subscribe today and get 6 issues completely free.

Read more about