* Dixons FY underlying profit 166.2 mln stg, up 76 pct
* Carphone FY headline EPS 18.4 pence, up 59 pct
* Shares fell after May 15 merger news, have rallied since
* Merger set to complete in August
(Adds detail, CEO, investor comment, shares)
By James Davey
LONDON, June 26 Britain's Carphone Warehouse
and Dixons Retail are winning over investors to
a merger that will create a powerhouse in consumer electricals
retailing, they said on Thursday, as they both posted big
increases in annual earnings.
Last month, the two firms agreed an all-share merger to
create Dixons Carphone, a company that would be worth 3.6
billion pounds ($6.1 billion) at Wednesday's closing prices and
tap into the convergence of smartphones and consumer electronics
in people's lives.
The May 15 announcement prompted a 10 percent slide in
Dixons' share price and an 8 percent fall in Carphone's.
Some analysts and investors were disappointed with targeted
annual cost savings and synergies of at least 80 million pounds
by 2017-18, while some were also concerned by a possible
top-heavy management structure and the perceived defensive
nature of the deal in the face of online competition.
Shares in both firms have since rallied strongly, however,
and are up 3 percent over the last month.
"The share price has come right back, so we're pretty
comfortable that investors are happy with the story," Seb James,
Dixons' CEO and the CEO designate of the merged group, told
reporters on Thursday.
James and Carphone CEO Andrew Harrison both said the deal
made financial sense if it was considered purely on the basis of
combined profits and forecast synergies.
"That's even if you don't believe the reason we're actually
doing the deal, which is the strategic coming together of
someone who is brilliant outside the home and someone who is
great within the home," said Harrison.
James added: "It's easier for investors to put in their
spread sheets things that are concrete. It's our job to dream
about the future."
One of Carphone's top 10 investors told Reuters he had been
unimpressed with the presentation of the deal on May 15 but had
been convinced of its strategic rationale after a further
meeting with management.
"The lessons learnt were don't talk wavy, talk numbers, talk
concrete strategy," said the investor.
Carphone, Europe's largest independent mobile phone firm and
Dixons, Europe's No. 2 consumer electricals retailer, said the
merger was on track with the expected timetable. On Wednesday it
received the unconditional approval of the European Commission.
Shareholders will vote on the merger at meetings on July 17,
with shares in Dixons Carphone due to start trading on Aug. 7.
The deal would create a firm with turnover of about 12 billion
pounds, 2,900 stores and 45,000 staff. The combined group is
likely to enter Britain's FTSE 100 index of leading companies.
Carphone reported annual earnings up 59 percent, driven by
growing sales of superfast 4G mobile broadband phones, while
Dixons' profit increased 76 percent, helped by demand for tablet
computers, kitchen gadgets and big-screen televisions.
Dixons, home to the Currys and PC World chains in Britain,
Elkjop in Nordic countries and Kotsovolos in Greece, also said
its new fiscal year had started well, with TV sales boosted by
the soccer World Cup and early glimmers of a consumer recovery.
It made an underlying profit before tax of 166.2 million
pounds in the year to April 30, beating company guidance of
about 160 million pounds.
Carphone made headline earnings per share of 18.4 pence for
the year to March 29 - in line with company guidance of 17-20
pence. It is paying a final dividend of 4 pence, making 6 pence
for the year, up 20 percent.
($1 = 0.5889 British Pounds)
(Editing by Paul Sandle and Mark Potter)