Dial-A-Phone accepted a knocked down £9m offer to buy the entire business from Phones 4u this week, despite the fact that the owners were holding out for a price tag of around £60m two years ago.
The willingness to accept Phones 4u’s offer is believed to have increased by the impending increase in capital gains tax from 10% to 18% in April this year.
Phones 4u wants to keep running Dial-A-Phone without any interference but it is believed that Phones 4u will close down the Northampton distribution centre in the coming months, integrating the operation with its existing distribution centre in Stoke.
The massive cut in the company’s valuation is largely a result of a grim period of trading at Dial-A-Phone over the last two years as the contract volumes were driven down from a high of around 40,000 a month to less than 10,000.
Phones 4u CEO Tim Whiting was cleared to make the purchase from private equity parent company Providence Equity Partners. A deal was concluded this week with Dial-A-Phone’s joint owners Richard Frank and Jonathan Beck.
Dial-A-Phone and Phones 4u had similar market share of around 25% in 2005 before the online retailer quickly lost ground in the contract market after relentless pressure from Carphone Warehouse and its sister sites, e2Save and OneStopPhoneShop.
Phones 4u will now boost its sales as a group by using its Dial-A-Phone operation to spike contract sales for its key suppliers, Vodafone and Orange. Both of those networks have been virtually non-existent on Dial-A-Phone’s offers for over a year.
Operators such as 3, T-Mobile, Orange and Vodafone pulled away from the online giant in the last two years, privately citing the quality of customers Dial-A-Phone generated and negative sentiment towards cashback promotions.