Dixons Retail Plc (DXNS), the largest U.K. consumer-electronics retailer, said it’s in talks to merge with Carphone Warehouse Group Plc, (CPW) bringing together companies with combined revenue of about 12 billion pounds ($20 billion).
Discussions are at a very preliminary stage, the companies said today in a statement, sending Dixons shares up as much as 11 percent and Carphone Warehouse as much as 7.1 percent.
A combination would give Hemel Hempstead, England-based Dixons a bigger presence in the fast-growing areas of mobile phones and tablets, while providing Carphone Warehouse access to the purchasing scale of the domestic market leader. An enlarged business would be in a stronger position to deal with mounting competition from online retailers and supermarkets.
“This makes a great deal of sense for both parties,” Bryan Roberts, an analyst at Kantar Retail in London, said by phone. “Dixons can bring its significant buying power in tablets for Carphone’s high street presence.”
Dixons rose 7.9 percent to 50.9 pence at 2 p.m. in London trading, valuing the company at about 1.9 billion pounds. That’s about the same valuation as London-based Carphone Warehouse, which gained 5.7 percent to 323.5 pence.
There is no certainty of a transaction taking place, the companies said in the statement. No decision has been reached regarding the structure of any such deal, they also said.
Under rules set down by the U.K. Takeover Panel, the retailers have until 5 p.m. on March 24 to either announce a firm intention to merge or abandon their discussions.
The talks follow years of merger speculation surrounding both companies. The Financial Times reported in 2011 that discussions between them broke down over valuation.
Carphone Warehouse, started in 1989 by Chairman Charles Dunstone and his business partner David Ross, is Europe’s largest independent telecommunications retailer, according to its website. The company has more than 2,000 stores and also owns a 46 percent stake in Virgin Mobile France.
Dixons has about 950 outlets, including the Currys chain in the U.K. that sells everything from washing machines to televisions. It also owns PC World in the U.K., Scandinavian market leader Elkjop and Kotsovolos in Greece. The retailer last month reported a 3 percent increase in group same-store sales for the two months ended Jan. 4, led by growth in the U.K.
Dixons is the larger company in terms of sales, reporting underlying revenue of 8.2 billion pounds for the year ended April 2013, compared with 3.7 billion pounds for Carphone Warehouse in the year through March 2013.
A deal would be more attractive to Dixons than to Carphone Warehouse, according to Ben Spruntulis, an analyst at Exane BNP Paribas in London. Dixons would benefit from Carphone’s expertise in mobile and tablets, its abilities within connectivity and systems, and the company’s relationships and scale with network operators, Spruntulis wrote in a note.
The rationale for combining the businesses would probably center on benefits of scale in the U.K., the analyst said. He cited the potential for store rationalization, buying synergies, central cost efficiencies and the creation of a large store base for the provision of click-and-collect services.
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