Carphone and Dixons in merger deal

Currys and PC World owner Dixons Retail is to merge with Carphone Warehouse in a £3.7 billion deal that aims to plug in to the way technology is transforming modern households.

Dixons Carphone's new management (left to right) Sir Charles Dunstone Chairman, Sebastian James, CEO, Andrew Harrison, CEO and Humphrey Singer, CFO.

The new retail giant fuses together the mobile phone and electrical goods sectors amid an increasing focus on the “Internet of Things”.

It will look to adapt to a new world where smartphones, tablets and rapid internet speeds will mean washing machines, fridges and boilers are controlled by the touch of a mobile device.

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Dixons chief executive Sebastian James 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.

“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.”

Mr James will be chief executive at the new group, to be known as Dixons Carphone, which joins two companies with combined sales of £12 billion, employing more than 43,000 people across Europe.

An announcement on the widely predicted merger said it would lead to “significant job creation” with the roll-out of stores increasing retail jobs by 4%, though efficiency savings from combining support functions would see these areas lose 2%. Overall, there would be a net increase of 2%.

Explaining the rationale behind the merger, the companies said: “The consumer electronics and mobile phone retail landscapes have evolved significantly over the last few years.

“In particular, the growth of smartphones, tablets and speed of internet access both in and out of the home, together with an increasing number of connected devices, are altering the way people live their lives, communicate and use technology.

“This creates a significant new opportunity for retailers to provide a broader range of products, connectivity, services and solutions to customers.”

Carphone founder Sir Charles Dunstone, who is to become chairman of the new firm, said: “We are incredibly excited about the opportunity today’s news brings.

“We have a deep respect for each other and 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.”

Sir Charles currently owns around a quarter of Carphone, the company he founded in 1989. It has around 2,000 stores including more than 800 in the UK.

Dixons, founded in the 1930s and based in Hemel Hempstead, Hertfordshire, has 943 stores in seven countries, including more than 500 in the UK.

The merger is expected to deliver combined yearly savings of £80 million although there will be restructuring costs of £55 million to £60 million and extra investment of £70 million to £80 million.

Its announcement came as Mr James unveiled latest trading figures from Dixons that he said put it in “a strong position as we embark on this adventure”.

Annual like-for-like sales were up 5% in the UK and Ireland for the year to the end of April, but they fell 2% in the fourth quarter as the group failed to build on a 13% rise in the same period last year when it cashed in on the demise of rival Comet.

Underlying pre-tax profits for the year were expected to be at the top end of market expectations of £150 million to 160 million.

Keith Bowman, equity analyst at Hargreaves Lansdown stockbrokers, said the combination of the two FTSE 250 firms would be likely to create a new FTSE 100-sized group, and merger savings would please markets.

Carphone’s high street presence was not seen as overlapping with Dixons’s out-of-town stores, so the two sets of shop portfolios were seen as complementary.

Mr Bowman added: “On the downside, shareholder and regulatory approval is still required, the merger of equals could still leave respective managements battling for dominance, whilst competition from the likes of Amazon will prove no less intense.”

Analyst Louise Cooper said there was “likely to be much scepticism” about plans for better growth through putting the businesses together.

She said: “Two past their sell-by date retailers merging does not an Amazon make.”

Carphone chief executive Andrew Harrison, who will be deputy to Mr James in the new company, said: “This is a merger that is ahead of the curve and not behind the curve and is thinking about how the world changes for our customers.”

He said the move towards making “smarter homes” would see the business help sell heating, lighting, security and fitness systems, as well as wearable devices, in addition to its present lines of electrical products.

It also expects to receive commissions for helping customers to set up apps for online retail platforms such as supermarkets and newspapers, as well as providing a service to keep connected homes running.

Mr Harrison said: “We believe we have the opportunity to sit alongside people like the AA and the RAC and Homeserve in a place where, if things go wrong in a connected world, we can be the emergency service for that.”

He envisaged a “nationwide fleet of people to be able to go and solve things”.

“It may be that we know before they do. It may be that we have someone turning up at your house to tell you your boiler’s broken or your internet connectivity’s not working as it should be.”

Mr James said: “What seems outlandish today will become absolutely ubiquitous in the next few years.

“We will be at the heart of the selling, installation and managing of these devices in a connected world.”

The merger aims to tap into a market where the number of connected devices in UK homes is predicted to rise from four to 20 in the next few years.

Mr James rejected the claim that weakness had pushed the companies into a deal, and delivered a riposte to Ms Cooper’s suggestion that the combination of two traditional retailers “does not an Amazon make”.

“She is absolutely right - we do make profits ... and pay tax.”

Sir Charles and Mr James both spoke of not “throwing the baby out with the bath water” and trying to retain the strength of both businesses.

The merger is subject to shareholder and legal approval and is expected to be completed in the third quarter of this year.

Dixons currently houses Carphone rival Phones4u in its stores, a deal which runs out next May. After this the units look set to be phased out amid the transition to the newly merged business.