(Repeats to add related graphic on market capitalisation)
* Dixons, Carphone in "very preliminary" merger talks
* Firms say no decision reached on structure of any deal
* Takeover Panel sets March 24 deadline for any offer
* Dixons shares up 7.9 pct, Carphone up 5.7 pct
By James Davey
LONDON, Feb 24 Britain's Dixons Retail
and Carphone Warehouse are in merger talks that could
create an electrical goods and mobile-phone group with a market
capitalisation of more than 3.4 billion pounds ($5.84 billion).
A combination of Dixons, Europe's No. 2 electricals
retailer, and Carphone, Europe's largest independent
mobile-phone retailer, would create a group with about 2,900
stores across the continent which would probably find a place in
Britain's FTSE 100 index of leading companies.
"The boards of Dixons and Carphone Warehouse note the recent
speculation and confirm that the two companies are in
preliminary discussions regarding a possible merger of Dixons
and Carphone Warehouse," the firms said in a brief joint
statement to the London Stock Exchange.
They said the talks were at a "very preliminary" stage and
there was no certainty a deal would occur. They added that no
decision had been reached regarding the structure of any merger.
Analysts said an all-share merger of equals seemed the most
likely deal. At their closing prices on Friday, Carphone was
valued at 1.77 billion pounds, Dixons at 1.72 billion pounds.
Shares in Dixons were up 7.9 percent at 1349 GMT, Carphone's
were up 5.7 percent.
Britain's Takeover Panel will require the companies to
announce by March 24 a firm intention to make an offer.
"In a world of connected devices, Dixons is under-exposed to
the key area of mobile/smartphone retailing, and it is known
that they were looking at the area," said independent retail
analyst Nick Bubb. "It is a bold move for Dixons; it is slightly
harder at this stage to see what's in it for Carphone."
Other analysts pointed to buying and head-office cost
savings. Discussions on a merger probably evolved, they said,
from talks on Carphone replacing Phones4U, which operates
outlets in some Dixons stores.
Dixons Chief Executive Seb James has made no secret of his
desire to increase the company's exposure to mobile phones.
Strong demand for smartphones and tablets in Britain has
been driving Carphone's share price rise, offsetting weakness in
its French business, and the firm has high hopes for 4G
superfast mobile broadband products.
Analysts said key to any deal would be the stance taken by
Charles Dunstone, who founded Carphone in 1989, and David Ross,
who together own a third of the firm's equity.
Dunstone is Carphone's chairman and its largest shareholder
with 23.5 percent. Ross, who is no longer involved in the
running of the company, holds 9.8 percent.
Analysts said James would be favoured to be CEO of the
merged group, with Carphone CEO Andrew Harrison reporting to him
and Dunstone as chairman.
"There are some big beasts here to keep happy, and history
would suggest that somebody's nose will be put out of joint,"
Shares in Dixons, which trails Metro's
Media-Saturn by annual sales, have soared 74 percent over the
last year, ahead of gains of 51 percent in Carphone Warehouse's
stock and against the 21 percent rise posted by Britain's midcap
index, of which they are both constituents.
Dixons, home to the Currys and PC World chains in Britain,
Elkjop in Nordic countries and Kotsovolos in Greece, has
increasingly focused on markets where it has a leading
"multi-channel" position with a combined stores and internet
Over the last year, it has offloaded the loss-making
e-commerce business PIXmania and operations in Turkey and has
partially exited Italy.
U.S. retailer Best Buy, having abandoned plans to
build a chain of European megastores, ended a joint venture with
Carphone Warehouse last April by selling its stake back to the
Carphone's brokers are UBS and Deutsche Bank
and its advisers are Credit Suisse. Dixons'
broker is Barclays and Citigroup its adviser.
($1 = 0.5993 British pounds)
(Reporting by James Davey; additional reporting by Brenda Goh,
Sarah Young and Anjuli Davies; Editing by Larry King)