This morning's news of a possible merger between Dixons Retail and Carphone Warehouse could prove to be a very smart move for both parties - here's why.
Dixons - which owns some 500 PC World and Currys stores in the UK - has had an incredible year. Following the demise of Comet in late 2012, Dixons sold off its loss-making businesses, went on to report underlying profit for the first time in six years.
CEO Sebastian James told us at the time: "We want our stores to get better and better all the time, and any retailer that doesn’t do that is dead."
But for all its success with computers, tablets and other tech, it has not quite managed to crack the lucrative smartphone contract market.
Signing a deal with Carphone Warehouse would not only give it the expertise in this area, but also broaden the reach of both parties across the UK.
Currys and PC World stores already have a solid presence within retail parks and shopping centres, while Carphone Warehouse seems to have a store on every High Street (some 794 in the UK and more than 2,000 overall).
A merger would bring the joint UK store count to around 1,300, turning both parties into a retail electricals powerhouse. It would give Dixons a far greater presence on the High Street, and provide consumers with more choice for tech goods in their local area.
For Carphone Warehouse, it would gain expertise outside of smartphones and tablets, and enable the brand to grow further. It too had a strong 2013, and last month reported its sixth consecutive quarter of like-for-like revenue growth. It also plans to open some 60 Samsung stores across Europe.
So both Dixons and Carphone Warehouse are already in great shape, and shares in both firms have risen following the news of a merger.
One obstacle to overcome would be Dixons' current partnership with Carphone Warehouse rival Phones 4U, which has concessions in 160 Currys/PC World stores. Whether these would simply be replaced with Carphone Warehouse concessions or scrapped entirely remains to be seen.
The news reminds me of GAME buyout of High Street rival Gamestation back in 2007, a deal that would eventually result in the pair halving their store count after GAME went into administation in 2012. 1,300 potential PC World/Currys/Carphone Warehouse UK stores is a massive number, and you would think there would be some kind of cost-cutting involved if a merger happens.
Like the pair have already said this morning, the merger talks are at a very preliminary stage and there can be no certainty that a transaction will be forthcoming.
But I'm certain that if they were to pull it off, this would create a tech retail force to be reckoned with.
UPDATE (May 16th 2014):Dixons Retail and Carphone Warehouse confirm they will merge in a £3.8 billion deal.