Dixons looks set to merge with Carphone

Reuters has reported that the European Union is set to approve the £3.8bn merger of the two companies before the end of June.

A Carphone Warehouse branch
Source: Bloomberg

Dixons is due to issue an earnings release for 2013 next week, but the expectation that the merger with Carphone Warehouse will get EU approval before then might change that timeline.

The two companies in total have almost 3,000 stores around Europe, and while Dixons only has a third of those, it has even more square footage because its outlets are much bigger. Both firms have stated that they do not anticipate widespread store closures, but considering the benefits of synergies and the overlapping exposure this would seem inevitable. It is expected that Dixons will post profits for 2013 of around £155 million, and it has stated it believes the merger will provide profits of up to £80 million.

The idea behind the merger is to create a company that is not only willing to sell the Android mobile device to you, but also able to offer an ongoing service to maintain your successful use of the product in the future. As mobile phones have transformed into considerably more complicated pieces of technology the skills required to maintain the software as well as the hardware have also transformed.

Since the turn of the year the shares have moved laterally and traders have waited to see how the proposed merger would develop. The fact that the 50-, 100- and 200-day moving averages have all converged highlights this uncertainty, but once completed this should help the newly formed company progress. Only a close below the year’s low of 42.5p would dent my longer-term optimism for the merged company.

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