UK’s Dixons and Carphone Warehouse agree £3.8bn merger

Britain's Carphone Warehouse and Dixons Retail have agreed a £3.8 billion all-share merger, creating a powerful pan-European mobile phone and electricals group with about 2,900 stores.

Carphone, Europe’s biggest independent mobile phone retailer, and Dixons, Europe’s number two electricals retailer, said on today the deal would be implemented by way of a scheme of arrangement of Dixons.

The merger would result in each of Dixons’ and Carphone’s shareholders holding 50 per cent of a group to be called Dixons Carphone, which will likely find a place in Britain’s FTSE 100 index of leading companies.

Under the terms of the merger, Dixons shareholders will receive 0.155 of a new Dixons Carphone share in exchange for each Dixons share.

Based on yesterday’s closing prices Carphone had a market capitalisation of £1.90 billion and Dixons £1.87 billion.

Carphone and Dixons said on February 24th they were in merger talks and had been given a May 19th deadline by the Takeover Panel to agree a deal.

The two firms said they will be able to achieve integrated mobile retailing and procurement synergies, together with cost savings, of at least £80 million on a recurring basis which are expected to be delivered in full in the 2017-18 year.

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

Dixons will take the top two executive roles, with its chief executive Sebastian James and chief financial officer Humphrey Singer adopting the same roles at the combined group.

Andrew Harrison, Carphone's CEO, will become deputy CEO, while Roger Taylor, deputy chairman of Carphone, and John Allan, the Dixons Retail chairman, will both be deputy chairmen.

The rationale for the merger is the increasing convergence of the smartphone and tablet market with that for electrical goods such as televisions, with Carphone bringing the expertise for the former and Dixons the expertise for the latter.

Dixons is currently under exposed to the key area of mobile/smartphone retailing, while Carphone will likely face increased pressure from mobile phone networks wanting to be more reliant on their own direct channels to consumers.

Dixons also released a trading statement today, predicting that full-year underlying profit before tax would be at the top end of market expectations of £150 million to £160 million. (Reuters)