Dixons, Carphone Warehouse in £3.4bn merger

Sebastian James and Sir Charles Dunstone will lead Dixons Carphone operations. Picture: Getty

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.

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.”

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

Explaining the rationale behind the merger, the companies said: “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.”

However, analyst Louise Cooper said there was “likely to be much scepticism” about plans for better growth through putting the businesses together, adding: “Two past their sell-by date retailers merging does not an Amazon make.”

Carphone founder Sir Charles Dunstone, who is to become chairman of the new combinedfirm, 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.”

Dunstone currently owns around a quarter of the mobile phone retailer, which he founded in 1989. The company has around 2,000 stores including more than 800 in the UK. Dixons, founded in 1937, 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 up to £60m and extra investment of £70m to £80m. The merger announcement came as Dixons said like-for-like sales grew 5 per cent in the UK and Ireland for the year to the end of April. Underlying pre-tax profits for the year are expected to be at the top end of market expectations of £150m to 160m.

Hargreaves Lansdown analyst Keith Bowman 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.

He 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.”