Merger16 May 2014 00:17
On the second tier, Dixons Retail and Carphone Warehouse were both lower after revealing they have agreed on an all-share merger valuing the combined entity at £3.8bn.
Michael Hewson, Chief Market Analyst at CMC, said that "today’s disappointing share price performance [indicates] that investors aren’t buying it, and to be honest neither do I".
He continued: "Dixons revenues look set to remain fairly flat over the next three years at around £7.5bn, while profit estimates look optimistic, unless they pare down on costs.
"As for Carphone Warehouse they’ve been down this road before with US electrical retailer Best Buy in 2008 and by 2011 Best Buy was packing its bags back to the US. Maybe the timing was bad with the financial crisis, but Best Buy is a much better retailer than Dixons, and the fact they couldn’t make that work doesn’t bode well for this particular merger."
Notably, as a merger of equals, neither set of shareholders will receive a premium as they would do in an acquisition.