Dixons has agreed to merge its loss-making Italian business with a local player as it looks to scale back its international arm.

Under the deal, Dixon’s UniEuro business will merge with Marco Polo, a multichannel electrical specialist with 79 stores owned by private equity group Rhone Capital.

Dixons will provide the merged business with €25m of cash and invest up to €10m in it in the form of a loan note.

The Currys and PC World owner will own a 15% share of the new company while Rhone Capital will hold 85%.

The new retail group will trade from 173 company owned stores and a number of franchise shops.

Dixons has faced difficulty in building scale in the country against a plethora of local players.

Unieuro generated pre-tax losses of £4.1m on sales of £516m and gross assets of £209.2m in the year to April 2013.

Dixons group chief executive Sebastian James said: “This is a terrific outcome for both Unieuro and Marco Polo, as it creates a unified force that has the potential to be at the forefront of electrical retailing in this large European market. I am pleased that we remain a shareholder and that this transaction gives clarity on the long-term future for the business and for our colleagues.”

Marco Polo chief executive Giancarlo Nicosanti Monterastelli said: “While market conditions in Italy remain challenging, the complementary channel strategy and store portfolios of the two companies will enable the new group to attract more customers across Italy and build-term growth.”

The move follows Dixons’ agreed disposals of ElectroWorld in Turkey and of Pixmania in France.

James added: “Once completed, these changes will enable the group to focus on those territories where we have marketleading multi-channel operations. I have no doubt that this increased simplicity and clarity will enable us to deploy our resources better and drive better value for all of our stakeholders.”