Dixons’ chief executive Sebastian James says he is confident the chain’s planned £3.8 billion merger with Carphone Warehouse will be a success – despite shares in both companies falling upon announcement of the deal. James said the move “made sense”, after Dixons noticed an increasing demand from customers for household electrical products that are connected to mobile technology.
The deal will see the formation of Dixons Carphone, which will be owned 50:50 between Dixons – owner of Currys/PC World – and Carphone Warehouse, which operates more than 2,000 stores around Europe. James assured staff that the merger would not lead to wide-scale job losses at either firm, but would instead stimulate new opportunities.
Carphone Warehouse supported that statement promising “significant job creation” of around 4%. However, behind the stage-managed message, some existing staff will be affected. Dixons said there would be job cuts of 2% of the merged company, “as a result of the rationalisation of certain operational and support functions”.
While revealing a 3% rise in underlying sales for Dixons – and forecasting up to £160 million in full-year profits for 2014 – James said: “Today we also announce that we are 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.”
He added: “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.”
The merger will save the companies £80m a year from the 2017/2018 fiscal year onwards, Dixons said. “This is a very rare thing – a merger which is based on what is happening out in the world, rather than internal navel-gazing,” James told BBC Radio 4′s Today.
Analysts have treated the merger with caution, as reflected in the share price of both parties, which sank right after the announcement. Critics of the development argue the merger does not directly address the biggest problems high-street retailers face: that of having too many bricks-and-mortar stores in the UK to pay for.
Conlumino consultant David Alexander said: “Although there are plenty of reasons to view the merger in a positive light, the history of [mergers and acquisitions] is littered with the corpses of failed unions. Carphone Warehouse itself is no stranger to this, having seen its partnership with US electronics giant Best Buy in 2008 peter out three years later in the face of intense competition from Dixons.”
In a joint venture called Carphone Warehouse Europe, the mobile phone retailer opened 11 American-style Best Buy electronics megastores in the UK. But after losing tens of millions of pounds, Carphone Warehouse decided to close the branches down in 2011. Earlier this year, Carphone Warehouse bought out the venture with Best Buy for £471m, giving it full control of its retail operations across Europe.
Carphone Warehouse said that it and Best Buy now intend to focus on their own regions. According to chief executive Roger Taylor, “The transaction will simplify our ownership structure, streamline management decision-making and give us full ownership of our growth opportunities across Europe.”
Image of Carphone Warehouse signage courtesy of Dutourdumonde Photography / Shutterstock