Shares in retail group Dixons Retail and mobile phone retailer Carphone Warehouse dropped sharply after the two retail firms released the news of a £3.8bn merger.
Shares in Dixons, the owner of Currys and PC World, closed down 10.3% following the announcement. Carphone Warehouse shares fell by 8%.
Analysts are skeptical about the tie-up between the two companies.
David Alexander at retail research agency and consulting firm Conlumino refers to the Carphone Warehouse tie-up with US electronics retailer Best Buy back in 2008 as an example of how a retail partnership can fall apart in the face of intense competition from rivals.
Daniel Latev, head of retailing research at Euromonitor International said: ‘Rapid growth in smartphones and tablets in Europe is expected to slow down’. Also, electronics and appliance stores are suffering from heavy online competition as consumer shift to online retailers, he added.
However, with sales of appliances ‘expected to rebound in the next five years’, Latev believes Dixons is well positioned to benefit from this trend which explains why 'Carphone Warehouse is interested in finding a strong partner’.
With mobile phones being of ‘the few electronics products which consumers still prefer to purchase in-store’, the opportunity is there for the combined company to compete better with online retailers and up-sell additional products to differentiate further through value added services, said Latev.
Announcing the deal, Dixons chief executive Sebastian James said the company was ‘setting out on a new journey with Carphone Warehouse’, adding that it was good to be in such a strong position as the companies ‘embark on this adventure’.
'The ability to take what we have built in electrical retailing and add the profound expertise of Carphone Warehouse in connectivity would make us a leading force in retailing for a connected world.'
'Together we can create a seamless experience for our customers that will enable technology to deliver what it promises - that is, to make their lives better.'
Ownership of the new group, Dixons Carphone, will be split equally between the two companies' shareholders.