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Carphone Warehouse and Dixons agree £3.8bn merger Carphone Warehouse and Dixons agree £3.8bn merger
(about 11 hours later)
Carphone Warehouse and Dixons have agreed a £3.8bn merger to create an electricals retail giant with 3,000 stores and sales of almost £12bn. Carphone Warehouse and Dixons have agreed a £3.8bn "merger of equals" to create a phones to fridges electricals retailer, offering service and support alongside a multitude of gadgets.
The new company, called Dixons Carphone, will bring the household names Currys, PC World and Carphone Warehouse under one umbrella. Dixons and Carphone shareholders will each own 50% of the combined group under the deal. With 3,000 stores and sales of almost £11bn, the new company, called Dixons Carphone, will bring the household names Currys, PC World and Carphone Warehouse under one umbrella.
Carphone and Dixons said the merged company would gain from greater buying power, extra growth options and annual cost cuts of at least least £80m within three years. The companies announced talks in February. The combined entity plans to do more than just sell phones, computers and household appliances. It aims to branch into domestic heating, lighting and security services – all controlled by mobile phone.
Sir Charles Dunstone, Carphone's chairman and founder, will chair the new group with Seb James, the boss of Dixons, as his chief executive. Carphone and Dixons said the merged company would benefit from greater buying power, extra growth options and annual savings of at least £80m within three years.
Dunstone said: "We are incredibly excited about the opportunity today's news brings to our organisations, our consumers and our investors. 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." It also hopes to retail the combined broadband, pay TV and phone services offered by operators like BT and Virgin, and to take commissions from supermarkets or music services for pre-installing their apps on smartphones.
Carphone Warehouse specialises in selling mobile phones while Dixons, through Currys and PC World, sells computers, tablets and other gadgets linked to the internet. Using Carphone's Geek Squad tech support teams, Dixons Carphone aims to stand alongside road rescue groups the AA and RAC as "an emergency service for the connected world", according to Harrison. The promise is for an end to end service, from sales to set-up advice, service, insurance, repairs and recycling.
The companies said the merger made sense because their two markets were converging as consumers increasingly use multiple devices to manage their lives online. Dixons and Carphone shareholders will each own 50% of the combined group under the deal, and Carphone concessions will be built into every Dixons outlet.
Both retailers are grappling with structural changes in the industry as sales move online and manufacturers such as Apple establish their own successful retail chains. Analysts also point to competitive threats faced by Dixons such as the growth of website AO.com, formerly Appliances Online, which floated earlier this year. In a leadership compromise, Carphone chairman and founder Sir Charles Dunstone will lead a 14-strong board that also includes two deputy chairmen, a chief executive, a deputy chief executive and a senior non-executive director. Dixons boss Sebastian James will be chief executive, while Andrew Harrison of Carphone Warehouse becomes his deputy.
The companies said they would cut about 2% of their combined workforces to reduce costs but that they would add 4% to exploit growth opportunities, leading to a net 2% increase in employee numbers. "This is a genuine merger of equals founded on core strategic principles rather than straight cost cuts," said James, presenting the merger deal at London's Shard skyscraper on Thursday. "We do things that are so adjacent that it makes sense to come together. Our markets are converging, and we are converging."
Under the terms of the merger, Dixons shareholders will receive 0.155 of a new Dixons Carphone share in exchange for each Dixons share. The companies first announced their merger talks in February, although informal discussions about a possible tie-up began four years ago.
At Wednesday's closing prices, Carphone's market capitalisation was £1.9bn and Dixons' was £1.87bn. The combined company is likely to join the FTSE100 index. Dunstone said: "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."
But both companies are grappling with structural changes as sales move online. Amazon has squeezed margins at Dixons, while recent arrival AO.com, formerly Appliances Online, has just announced it will branch out from its white goods heartland into selling televisions as football fans install bigger screens in preparation for this summer's World Cup in Brazil.
Electricals retailers are in danger of following book and record stores into high street oblivion. Comet was recently pushed into receivership, while Carphone's short lived attempt to sell electricals with Best Buy ended in failure.
Meanwhile, mobile networks would like to sell more through their own shops and so pay less commission to Carphone, and Apple does very well selling phones through its retail spaces.
Independent analyst Louise Cooper at CooperCity was unimpressed with the deal: "Two past-their-sell-by-date retailers merging does not an Amazon make." She also criticised the top heavy leadership structure, saying: "The board is beginning to look as unwieldy as that of Co-op. Executives are not leading from the front. Mostly they are retaining their jobs. That is the wrong message to the workforce."
Investors appeared to agree, sending shares in both firms plummeting, with Dixons down nearly 10% to 46p per share, and carphone down more than 7% to 303p.
"Concerns remain that the emphasis on equality in the merger may be masking indecision over who should take charge," said David Alexander at retail researcher Columino.
The companies said they would cut about 2% of their combined workforce to reduce costs but that they would add 4% to exploit growth opportunities, leading to a net 2% increase in staff.
Under the terms of the merger, Dixons shareholders will receive 0.155 of a new Dixons Carphone share in exchange for each Dixons share. Dunstone's 23.5% share in Carphone will be halved to 11.75% in the new company.
At Wednesday's closing prices, Carphone's market capitalisation was £1.9bn and Dixons' was £1.87bn. The combined company is likely to join the FTSE 100 index.
Dixons released a trading statement predicting annual underlying pretax profit would be at the top end of market expectations, around £150m to £160m.Dixons released a trading statement predicting annual underlying pretax profit would be at the top end of market expectations, around £150m to £160m.