Just over a month on from Dixons Retail and Carphone Warehouse having agreed a £3.8 billion merger to create a new mobile phone and electricals group, Dixons Carphone is set to secure unconditional EU antitrust approval for the merger on Wednesday.
As the companies prepare to publish their annual results on Thursday, both parties are hoping the tie-up will help to capitalise on the growing trend of smartphones connecting to consumer electronics. Analysts at Exane BNP Paribas predict Carphone Warehouse will report full-year earnings of £150 million.
At the time of the announcement, analysts were sceptical about the tie-up between the two companies with David Alexander of Conlumino referring to Carphone’s previous deal with Best Buy as an example of how a retail partnership can fall apart as a result of intense competition.
The decision to join forces is timely, Kester Mann, industry analyst with CCS Insight, told Mobile. "Bricks-and-mortar retailing is under pressure, the competitive landscape is intensifying and the product categories both companies offer are converging."
Mann believes cost-saving is a key motivation for the merger. “I see the deal largely as a defensive reaction to challenges being faced by both companies.” Dixons continues to see its business threatened by online retailers, while Carphone Warehouse is facing up to the trend of mobile operators focusing more on the direct route to market, he said.
The creation of Dixons Carphone reflects a "heightened focus" on the high street from the mobile sector. Smartphone demonstrations and support at the point of sale will be an "even more important differentiator and retention strategy", he said. Others will watch the progress of this new entity with interest - if successful, it could prove to be a template for the future of consumer electronics retailing.
With a lot of hope being placed on the emerging ‘Internet of things’ segment, this is a category that has long been heralded as a future growth opportunity. “However, revenues are currently small and the area is fraught with risk.”
With the deadline for EU approval being tomorrow, Mann told Mobile, "I fully expect it to get the go-ahead, and there should be no major concessions for the two companies." This indicates "no major concerns" that prices could rise as a result of the deal.
Neil Mawston of Strategy Analytics.com told Mobile: “The merger of Dixons Carphone shows how the convergence of electronic gadgets is driving the convergence of distribution channels.” Carphone's mobile expertise is merging with Dixons' product knowledge in the home and office.
“Provided the pricing is right, millions of British consumers could eventually be persuaded to buy most of their electronic gadgets under one roof e.g. Apple fans will soon want to buy an iPhone, iPad and iMac to control their internet-enabled TVs, cookers and fridges at home.”
Dixons Carphone, as a combined entity, can supply multiple electronic products under one roof, he said, and it puts the company in a much stronger competitive position than “mobile-only” rivals like Phones 4U.
“We expect the financial results of Dixons Carphone this week to be relatively robust and benefit from the current upturn in UK consumer spending. Investors will want to hear more information on the level of cost savings the merger will bring and how the high-street and online integration processes are coming along.”