Retail giant to emerge from merger

Updated: 

PA

A £3.7 billion merger between Carphone Warehouse and Dixons is set to be unveiled this week in a move creating a retail giant with 1,300 UK stores.

The new company, which will be called Carphone Dixons plc, should enable Currys and PC World owner Dixons to boost its exposure to the burgeoning mobile and smartphone market.

The terms of the combination are expected to be announced on Thursday following two months of talks between the two sides.

Existing brands are unlikely to be affected but there will be savings from head office functions and Carphone supplying Dixons' internet-connected goods.

Sir Charles Dunstone still owns a quarter of Carphone, the firm he founded in 1989, and is in line to become chairman of the newly-merged retailer. The firm has around 2,000 stores including more than 800 in the UK.

Dixons, founded in the 1930s and based in Hemel Hempstead, Herts, has about 900 stores, including more than 500 in the UK. Together, the two companies would have annual sales of more than £12 billion, and a market value of about £3.7 billion.

Such a retail behemoth would be expected to have more power to stand up to upstart online competition from electrical retail rivals such as AO World.

Both companies have weathered tough trading conditions in UK retail with Dixons benefiting from the demise of rival Comet.

But retail analyst Nick Bubb said: "The main question is still why the two companies want a merger of equals.

"In a world of 'connected devices', Dixons is under-exposed to the key area of mobile/smartphone retailing and it is well known that they have been looking at getting more involved in the area."

Dixons chief executive Sebastian James, who is set for the same role at the merged retailer, is said to be keen to move his company on from a current tie-up in the mobile sector involving Carphone's rival Phones4u.

Mr Bubb said: "It's therefore easy to see what's in it for Dixons, but it remains harder to see what's in it for Carphone and hard to understand why Charles Dunstone appears to have been the main driver of the merger plan.

"If Carphone possesses unique strengths and expertise in this market, you'd think that Carphone would be playing hard to get."

There is thought to be a defensive logic for Carphone as it faces a squeeze from the major mobile phone networks as they seek to concentrate sales in their own stores.

A previous partnership with US retailer Best Buy failed to live up to its promise. Launched in 2008, it aimed to create a consumer electronics empire to take on the likes of Dixons.

With an ambition to lure customers to large "big box" stores with American-style customer service, the joint venture was unable to make headway as the recession created a tough consumer market and it finally ended last year.

But at the time of the launch, Sir Charles was showing reporters around a plush Best Buy outlet in Chicago when he reportedly said: "Look at this next to Currys or PC World - there's no comparison.

"So many retailers have tried to take labour out of their models. A lot of electrical stores now just keep the rain off the stock."

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