It could be a marriage made in heaven, but mergers of equals aren’t easy to make work, so Dixons and Carphone Warehouse will each need to negotiate well.

It could be a marriage made in heaven, but mergers of equals aren’t easy to make work, so Dixons and Carphone Warehouse will each need to negotiate well.

What today’s shock news that Dixons and Carphone Warehouse are in preliminary discussions regarding a possible merger certainly shows is that the great M&A game is back in town to generate handsome fees for investment banking advisers, but what’s in it for the two companies?

The initial stock market reaction was to mark both share prices up, implying that one plus one makes more than two and that the synergies between the technology retailers should be impressive, despite the failure of Carphone’s much-vaunted tie up with Best Buy back in 2008.

From Dixons’ perspective, having successfully sorted out its loss-making operations in Europe last year and exploited the demise of Comet in the UK, there was a debate to be had about what its next big move should be, notwithstanding a slightly weak balance sheet.

In a world of ‘connected devices’, Dixons is under-exposed to the key area of mobile/smartphone retailing and it is known to have been looking at getting more involved in that area. So while today’s news is not entirely a bolt from the blue it is a bold move for Dixons.

Of course, there is some history here. Dixons used to own a mobile phone retailer called The Link (the current chief executive of Pets at Home, Nick Wood, used to be the managing director).

But the business was sold, for a song, to erstwhile network partner O2 back in 2006.

Since 2006 Dixons has been focusing on the boom in PCs and tablets and expanding into Europe, but the technology markets are converging (small tablets and large smartphones are much the same thing) and since July 2010 Carphone’s pushy rival Phones4U has had in-store concessions in many Currys and PC World stores.

Dixons’ ebullient chief executive Seb James hasn’t seemed entirely satisfied with the arrangement with Phones4U, either because he thought he could do it better himself or because if you want to be involved in this market you ought to be in bed with the best-in-class operator, which is undoubtedly Carphone.

Carphone remains a customer-led service business, which is exactly what the new Dixons is trying to be, so a deal with Carphone would undoubtedly boost Dixons’ service credentials both in the UK and across Scandinavia.

It is slightly harder at this stage to see what’s in it for Carphone, which has only just agreed a deal with mighty Samsung to operate standalone stores for it in the UK and Europe to try to replicate Apple’s incursion into the retailing market.

What is clear is that Carphone’s founder Charles Dunstone is extremely shrewd, as he demonstrated in his clever negotiations to sell 50% of his business at a high price to Best Buy in 2008 before buying it back cheaply a bit later. Dixons will need its best negotiating team around the table.

Both sides will try to get the best of the bargain, but it is intriguing that at Friday night’s close the two businesses were both capitalised at about £1.7bn. Mergers of equals aren’t easy to arrange, because neither is dominant enough to drive through the changes required.

It appears that Seb James would be group chief executive, with Carphone CEO Andrew Harrison reporting to him, and Charles Dunstone would be chairman. There are some big beasts here to keep happy and history would suggest that somebody’s nose will be put out of joint.

And what will the new company name be? Carphone Warehouse’s name has long been anachronistic because it doesn’t sell carphones and it doesn’t operate warehouses. In Europe the business trades as Phone House.

In the same way, it is increasingly odd that Dixons mainly trades as Currys/PCWorld in the UK.

So should be the new business be called Dixons Warehouse? Currys Warehouse? Currys House?  Phone Dixons? Phone Currys?

Something boringly anonymous and generic like PCPW Retail?

Or The James Dunstone Group?

  • Nick Bubb has been a leading retailing analyst for over 30 years. He is a well-known commentator on UK retailing and is a founder member of the influential KPMG/Ipsos “Retail Think-Tank”.