Dixons In Carphone Warehouse Merger Talks

The chief executive of Dixons Retail (Other OTC: DSITF - news) is in line to head one of Britain's biggest high street groups if merger talks with Carphone Warehouse (LSE: CPW.L - news) result in a deal.

Sky News can reveal that Sebastian James would become chief executive of a combined Dixons and Carphone Warehouse, as the two companies seek to compete with the encroachment of supermarkets such as Tesco (Xetra: TCO.DE - news) onto their retailing turf.

The merged group would have approximately 1,300 UK shops, with Dixons currently operating more than 500 and Carphone almost 800.

In statements to the London Stock Exchange (Other OTC: LDNXF - news) on Monday morning, Dixons and Carphone said they were in discussions about a merger.

"The Boards of Dixons and Carphone Warehouse note the recent speculation and confirm that the two companies are in preliminary discussions regarding a possible merger of Dixons and Carphone Warehouse," the pair said.

"These discussions are at a very preliminary stage and there can be no certainty that a transaction will be forthcoming."

Both companies' shares jumped on the news, with Carphone Warehouse climbing 2.2%, giving it a market value of £1.8bn. Dixons shares rose 3.1%, giving it a slightly lower market capitalisation.

A source close to Dixons said that a transaction would be structured as a merger of equals, although both companies said they had yet to reach a decision about the final structure.

The two companies have until March 24 to agree a deal, although they can request an extension to that date from City watchdogs.

The talks are understood to have begun several weeks ago, with initial discussions focused on Carphone taking over the management of Dixons' in-store mobile phone business, a contract currently held by rival Phones4U.

Under the plans being hammered out by Dixons and Carphone, Sir Charles Dunstone, the Carphone co-founder, would be chairman of the combined group, with a potential deputy chairman's role for John Allan, the Dixons Retail chairman.

Andrew Harrison, Carphone's chief executive, would probably take on a role as deputy chief executive or chief operating officer of the group, the source close to Dixons added.

The opportunity for cost synergies from a merger would be limited because of the limited overlap between the two retailers' product bases, analysts said.

There would be likely to be some savings from a merger of their head offices, however, they said.

The talks are not the first time that Carphone and Dixons have held talks about a deal, with discussions in the summer of 2011 falling apart because of the then gap between the valuations of the two companies.

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