Electronics retailer Dixons (DXNS) and mobile phone seller Carphone Warehouse (CPW) are in merger talks which, if successful, could result in a combined company large enough to enter the FTSE 100 share index.
Management on both sides of the table stressed that discussions were at "very preliminary stages" and would not disclose the structure of any merger. They have until 24 March to announce a firm intention to make an offer.
Dixons has limited exposure to the mobile phone market, so a merger would give it a strong foothold in this growing sector. The benefits for Carphone Warehouse are less clear. But, on a longer term strategic view, the general move towards a more connected world and the development of the 'internet of things' which will see household appliances connected to the internet and controllable via mobile phone could explain the tie up.
"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," said retail analyst Nick Bubb. "It's slightly harder at this stage to see what's in it for Carphone. Having said that, founder and chairman Charles Dunstone is extremely shrewd, so Dixons will need their best negotiating team around the table."
Shares in Dixons, home of Currys and PC World, rose nearly 7 per cent after the announcement to 50p, giving the group a market capitalisation of £1.72bn. Carphone Warehouse, which is valued at £1.75bn, saw its stock surge 8 per cent to 330p. Over the past year, both companies have seen their share prices soar. Shares in Dixons have risen 85 per cent, while shares in Carphone Warehouse are up 55 per cent. With both companies valued roughly the same, an all-share merger would be the most likely outcome if a deal were agreed.
