£23m cost-saving opportunity for Dixons and Carphone Warehouse

"We see limited buying and cost saving opportunities," say financial experts
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Dixons Retail and Carphone Warehouse could save a combined £23 million if they merge, claims financial services and investment specialist Investec.

However, Investec said in a statement that cost-saving opportunities were 'limited' for the retailers, as there is little overlap in terms of their product categories and types of stores.

"We believe the potential merger is more about strategic logic than cost savings," Investec said in a statement. "We see limited buying and cost saving opportunities as we believe there is little overlap by product category from a purchasing perspective, except in tablets. Most of the products in this category are branded and we believe suppliers will continue to be in a strong negotiating position even after combining both businesses’ buying power.

"However, there is always potential central cost savings in this type of deal and, as discussed above there is likely to be an opportunity for further rationalisation of space, though this is likely to depend on lease lengths. There is also an opportunities for exchange of best practise and building stronger supplier relationships across more categories. We believe it would be realistic to expect a one per cent reduction in the combined cost base of £2.253 billion, which would imply a cost saving opportunity of £23m. 

It added: "Within the UK, both companies trade from very different locations generally with Dixons mainly edge-of-town/retail parks large stores and Carphone located in higher footfall areas in town with stores 2,000sq ft in size on average. We would expect both formats to be run concurrently servicing different customer needs.

"We would expect there to be a limited opportunity to rationalise a combined store portfolio as well as to look at trialling new formats. We note that Dixons is already focused on rationalising its UK portfolio from just over 500 stores down to management’s ultimate vision of 380 to 400 outlets and that it has been exiting High Street locations in recent years."

Dixons Retail and Carphone Warehouse confirmed yesterday they are in preliminary discussions over a possible merger.

Carphone Warehouse founder and chairman Sir Charles Dunstone is believed to be unwilling to back the Dixons merger, unless both firms are given equal weight.

Image source: Shutterstock (pound sterling coins)

UPDATE (May 16th 2014):Dixons Retail and Carphone Warehouse confirm they will merge in a £3.8 billion deal.

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