Dixons is not being devious it had to unwind a disastrous merger


The timing is appalling, of course. Closing 531 stores, with the loss of 2,900 jobs, in the middle of the coronavirus crisis makes Dixons Carphone look devious. Actually, though, that’s not quite fair. The truth about Dixons’ £3.8bn merger with the phone chain has been on full display for years: it was one of the worst deals in recent retail history.

That’s not the fault of the current chief executive, Alex Baldock, who has spent much of his two years in charge trying to untangle the web of punitive contracts with mobile networks that tied Carphone to hitting sales volumes it struggled to achieve. The closure of the high street stores is just a brutal but logical next step in trying to slim Carphone to a viable business that sits solely within Currys and PC World stores.

The net result, though, is a thumping £220m cash restructuring charge, mostly covering lease costs and redundancies, that is equivalent to about a year’s worth of current group-wide top-line profits. Carphone’s contribution to that blended figure, note, will be minus £90m this year; the dizzy heights of breakeven are not expected until the financial year ending in April 2022.

Hindsight is perfect but the laughable “merger of equals” always had the potential to become unstable. The clue was the quantity of management guff about how our phones would soon be communicating with our fridges. At the margin, some of those “connected world” predictions have come to pass, but so what? In tighter mobile market, networks and handset makers were always likely to put the squeeze on a mere intermediary such as Carphone.

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If Dixons’ board, circa 2014, really felt a technology retailer needed to be in the mobile game, it should have taken a punt on starting an operation from scratch. Even a £500m mistake would have been better than what’s been delivered. Naturally, those Dixons architects of the deal all left the scene before their visions collided with reality.

Centrica boss’s prolonged exit

Iain Conn’s exit from Centrica has been a prolonged affair and was low-key when it finally happened on Tuesday. It got second billing to the news that chairman Charles Berry, who has been advised by doctors to reduce his workload, has been succeeded by Scott Wheway. Conn himself has been replaced by finance director Chris O’Shea until a permanent chief executive is found.

One can, then, post the ugly final share price score on Conn’s watch: 280p to 40p in five years, with two dividend cuts along the way. Coronavirus can be blamed, at most, for the last 40p-odd of the decline.

Conn was dealt a rotten hand since Centrica had too many small bits and pieces that sat uncomfortably with the core British Gas retail business, which was itself whacked by the energy price cap. The moral of the tale, though, is probably this: if you’re going to sell assets as part of a “transformational” strategy, get on with it.

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Centrica still owns an unwanted half-share in Spirit Energy, an upstream oil and gas producer, plus a 20% stake in nuclear generator British Energy in a world where it’s suddenly hard to spot buyers.

Cineworld’s bad timing on discretionary payments

Cineworld’s decision last week to raise its dividend was bizarre, as argued here at the time. The cinema chain’s auditors had warned of a breach of banking covenants if revenues were to dry up for two to three months. You don’t make discretionary payments in those circumstances.

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Now the cinemas, including Cineworld, have started to shut their doors to contain the spread of the virus. The company’s share price halved on Tuesday. It’s time for a divi rethink, not least because Cineworld’s next step is surely to try to pull out of the planned $2.1bn purchase of Canadian chain Cineplex. It’s hard to plead special circumstances when you’re still pretending you can afford a $50m dividend.



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