Dixons and Carphone Warehouse in merger talks

Duo confirms talks to become £12bn-sales titan as analysts predict enlarged entity could dominate European mobile market

Dixons and Carphone Warehouse have confirmed they are in talks over a possible merger.

In a stock market announcement released this morning by Dixons Retail plc, the two companies "note the recent speculation and confirm that the two companies are in preliminary discussions regarding a possible merger". The announcement stresses that the proposal is still embryonic, and that no substantive details can yet be provided on how the merger might be realised.

"These discussions are at a very preliminary stage and there can be no certainty that a transaction will be forthcoming," says the announcement. "No decision has been reached regarding the structuring of any such merger. Accordingly until further notice, for the purposes of the [City] Code [On Takeovers and Mergers], both Dixons and Carphone Warehouse will be treated as offeree companies."

If the two firms were to merge, it would create a £12bn-turnover high street giant. In its most recently completed fiscal year, Dixons posted group revenue of £8.21bn, with EBIT of £136m. Carphone Warehouse's FY13 sales were £3.7bn, with EBIT of £136.6m.

A research note from analyst CCS Insight issued today claims that "the rationale for this move is clear: both retail chains offer similar ranges of connected products and are looking to optimise their retail networks". The note adds that, should the merger come to pass, the duo would have the power to dominate mobile retailing across the continent.

"[This news] emphasises our view that devices have become a continuum, differing only in screen size," said CCS Insight. "Despite the shift to internet sales, a presence on the high street will continue to be important, and a new entity has the potential to reshape mobile retailing in Europe."