15th May 2014 08:56
LONDON (Alliance News) - Electronics retailer Dixons Retail PLC and mobile phone retailer Carphone Warehouse Group PLC Thursday said they'd now agreed to merge, a GBP3.6 billion deal that will create the UK's biggest retailer of mobile phones and electrical goods.
In a statement Thursday, the two companies said the shareholders of both companies will have equal shares in the new company, which will be called Dixons Carphone PLC. Carphone Warehouse Chairman Charles Dunstone will become the chairman of combine company, while Dixons Chief Executive Sebastian James will become CEO. Carphone Warehouse Chief Executive Andrew Harrison will become deputy CEO.
However, the equality of the deal - both companies have market capitalisations of about GBP1.8 billion - has led analysts to question who will take the driving seat in the integration process.
The two companies had said they were in merger talks back in February, less than a year after Carphone Warehouse extracted itself from a failed joint venture with Best Buy of the US. It comes as traditional retailers, particularly those in the electronics sector, face increasing competition from online retailers.
"Carphone and Dixons are both experienced operators with significant knowledge and expertise. The integration of the two businesses will be managed by a dedicated integration team, bringing together the best relevant capabilities of both businesses, with the aim of facilitating a smooth integration," the companies said in a joint statement.
The companies think they will be able to achieve integrated mobile retailing and procurement synergies, together with cost savings, of at least GBP80 million on a recurring basis, with almost half coming by the 2015/16 financial year and the full benefits being felt from 2017/18.
Under the terms of the merger, Dixons shareholders will receive 0.155 of a new Dixons Carphone share, in exchange for each Dixons Retail share.
Dixons Retail has spent several years turning itself around after over-expanding and then being hit hard by expanding online competition and the economic crisis. It was helped when rival Comet went into administration at the end of 2012. It has shed loss-making businesses such as Pixmania in France, Electroworld in Turkey and Unieuro in Italy, and reacted to the challenge of online competitors in the UK by slashing costs, and bringing down the price of its own goods closer to those of e-tailers like Amazon. It has also improved its own online platform.
In a separate statement Thursday, Dixons Retail said that underlying sales were up 3% in the year ended April 30, as well as on a like-for-like basis. It said it expects to report full-year underlying pretax profit at the top end of market expectations of GBP150 million to GBP160 million.
Carphone Warehouse, meanwhile, did well out of the deal it struck with Best Buy. The US electronics retailing giant paid Carphone GBP1.1 billion for a 50% stake in the British company's retail unit as they set up a joint venture. However, Best Buy retreated from Europe just five years later, selling back the stake for less than half the initial investment. Carphone then decided to shutter the joint venture stores they'd opened, focusing instead on selling more electronics goods from its phone stores.
The Dixons Carphone merger is conditional on the approval of shareholders from both companies and on normal regulatory approvals and anti-trust clearances.
"Carphone and Dixons have put in place appropriate banking facilities to ensure that Dixons Carphone will have a strong financial profile following completion, which will enable the combined Group to retain flexibility whilst reviewing its optimal capital structure going forward," the companies said in a statement.
Carphone Warehouse Deputy Chairman Roger Taylor and Dixons Retail Chairman John Allan will become co-deputy chairmen of the new company,
Dixons shares were down 5% at 48.36 pence Thursday morning, one of the biggest declines on the FTSE 250, while Carphone Warehouse shares were down 3.4% at 316.70 pence, also among the biggest faller. Both stocks had risen initially.
Dixons was advised by CitiGroup on the deal, while Carphone Warehouse was advised by Deutsche Bank.
By Rowena Harris-Doughty; [email protected]; @rharrisdoughty
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