Dixons and Carphone Warehouse to merge

July 2014 | DEALFRONT | MERGERS & ACQUISITIONS

Financier Worldwide Magazine

Dixons Retail Plc and Carphone Warehouse Group Plc have announced an all share merger of equals which sees two of the UK’s largest retailers create a new retail superpower valued at over $5bn.

Rumours of a deal between the two firms had circulated for a number of months before the merger was finally announced in May. According to the two firms, concrete talks began in February. The newly merged firm will be known as Dixons Carphone PLC and will bring household names such as Currys, PC World and Carphone Warehouse together in one merged portfolio of brands.

Should the merger win the approval of the two companies’ shareholders and various antitrust regulators, the new firm will be equally owned by shareholders of both Dixons and Carphone Warehouse. It is believed the new electrical giant will have around 3000 retail outlets across the UK and Europe and a market capitalisation of approximately £3.74bn. Under the terms of the merger, Dixons shareholders will receive 0.155 of a new Dixons Carphone share in exchange for each Dixons share held.

According to a joint statement announcing the deal, Sir Charles Dunstone, chairman and founder of Carphone Warehouse, will chair the new group. Sebastian James, chief executive of Dixons, will continue as chief executive of the new group. “We are incredibly excited about the opportunity today’s news brings to our organisations, our consumers and our investors,” said Sir Dunstone. “We 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.”

The two firms expect the deal to achieve integrated mobile retailing and procurement synergies, together with cost savings of around £80m annually from the 2017-2018 fiscal year. However, around half of those synergies are expected to be achieved in the fiscal year 2015-2016. Neither company expects there to be any branch closures as a result of the merger; indeed, Carphone Warehouse believes the merger will lead to significant job creation.

The deal, once completed, will provide Dixons with a significantly bigger presence in the fast-growing areas of mobile phones and tablets. The companies are also hoping to exploit the growth of the so called ‘internet of things’. The notion of many household appliances being connected to the internet and communicating with one another is an attractive proposition to firms such as Dixons and Carphone Warehouse. The merger will prove beneficial for both companies: Carphone Warehouse in particular will gain access to the purchasing scale of domestic market leader Dixons. Dixons is also the larger company of the two in terms of sales. The firm reported underlying revenue of £8.2bn for the year ended April 2013. Carphone Warehouse reported revenue of around £3.7bn for the year to the end of March 2013.

Mr James noted his company was “setting out on a new journey with Carphone Warehouse and it is good to be in such a strong position as we embark on this adventure. 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. 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”.

Carphone Warehouse, formed in 1989, will hope the merger proves more successful than its last attempt to marry its own high street retail locations with big box, out of town stores. In 2008, the company announced it had agreed a deal with US retailer Best Buy which it believed would create a new force in electronics retail. However, in 2011 that collaboration came to an end with Best Buy selling its stake in the venture back to Carphone Warehouse for half the price it originally paid.

Richard Summerfield