The share prices of both Dixons Retail and Carphone Warehouse fell yesterday (May 15th) following the news the two firms are to move forward with an equal shares merger.
An announcement revealed the new company is to be known as Dixons Carphone, but investors responded negatively to the news and stocks in both retailers fell as a result.
Dixons Carphone stated that the merger will allow the two companies to make the most of the development of the Internet of Things, which will see an increasing number of appliances from around the house start to be linked to the internet and controlled via smartphone apps.
But David Alexander, consultant at Conlumino, noted the history of this type of merger is "littered" with failed unions, which may help to explain why investors responded so negatively to the news.
He said: "Carphone Warehouse itself is no stranger to this, having seen its partnership with US electronics giant Best Buy in 2008 peter out three years later in the face of intense competition from Dixons."
The announcement from Dixons Retail also included the news that its full-year underlying sales had risen by three per cent, with the same increase posted in the firm's like-for-like sales.
Job losses will affect members of staff at both Carphone Warehouse and Dixons Retail in the coming months, but the new company suggested it could eventually boost its staffing levels by four per cent following the merger.
Carphone Warehouse currently runs 2,000 stores across Europe, while there are 500 Dixons Retail shops – mainly named Currys and PC World – in the UK and Ireland.
Stocks in Carphone Warehouse fell by eight per cent following the news of the £3.8 billion merger, while the share price of Dixons Retail dropped by over ten per cent. But both companies recovered somewhat in the early stages of trading this morning. At 08:36 BST, Carphone Warehouse stocks were up by 0.8 per cent, while the share price of Dixons Retail was more than one per cent higher compared to the start of the day.
However, at 10:35 BST, Dixons stocks were down 2.39 per cent and Carphone Warehouse shares were 2.83 per cent lower.
Find up to date information on the FTSE 100 and spread betting strategies at City Index
GAIN Capital UK Limited (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.
No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.