LONDON (Alliance News) - Shares in electronics retailer Dixons Retail PLC and mobile phone retailer Carphone Warehouse Group PLC shot higher Monday after they confirmed they are in merger talks.
In separate but similar statements, the two companies said the talks are at a very preliminary stage and there is no certainty a deal will be done. They also said there been no decision regarding the structure of a potential merger.
Dixons and Carphone Warehouse are of almost equal size, with a market capitalisation of about GBP1.8 billion.
Both companies have been performing relatively well in a UK retail market characterised by tough competition, particularly from online, and a still cautious British consumer, who has seen average wages decline in real terms since the financial crisis.
Dixons Retail was lifted by the failure of UK rival Comet, which went into administration at the end of 2012. It has also continued to restructure, shedding loss-making businesses such as Pixmania in France, Electroworld in Turkey and Unieuro in Italy. Dixons has also reacted to the challenge of online competitors by slashing costs, and bringing down the costs of its own goods, while also improving its own online platform.
Dixons Retail reported a 2% rise in group sales over the key Christmas period, but its UK & Ireland operations posted growth of 4%, or 5% on a like-for-like basis. It said it had done particularly well in the discount periods, with the "Black Friday" weekend better than it expected and TVs and laptops flying off the shelves on Boxing Day. However, like several peers, it remained cautious about the next few months.
Carphone Warehouse, meanwhile, did well out of a 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 humiliatingly 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.
Carphone Warehouse swung to a loss in the first half of its current financial year due to a costly exit from France, but it reiterated its full-year guidance as profits otherwise were lifted by market share gains and it set it sights on benefiting from the rollout of 4G networks.
Shares in both retailers were among the biggest FTSE 250 gainers Monday morning, with Dixons Retail trading 7.1% higher at 50.50 pence per share, and Carphone Warehouse shares up 0.6% at 307.70 pence per share, having risen as high as 322 pence in the wake of the announcement.
By Rowena Harris-Doughty; rowenaharrisdoughty@alliancenews.com; @rharrisdoughty
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