Dixons Retail, Europe's second biggest electricals retailer, and Carphone Warehouse, the continent's largest independent mobile phone retailer, have confirmed they are in merger talks.

“The boards of Dixons and Carphone Warehouse note the recent speculation and confirm that the two companies are in preliminary discussions regarding a possible merger of Dixons and Carphone Warehouse,” the firms said in a statement.

They said the discussions are at a very preliminary stage and there was no certainty a transaction will be forthcoming.

They said no decision has been reached regarding the structuring of any such merger.

The companies, which are both being treated as offeree companies, are required to announce a firm intention to make an offer not later than March 24th.

Shares in Dixons were up 4.8 per cent in early trading, while Carphone’s were up 1 per cent.

At their closing prices on Friday, Carphone Warehouse was valued at £1.77 billion while Dixons was valued at £1.72 billion.

Shares in Dixons, which trails Metro’s Media-Saturn by annual sales, have increased 74 per cent over the last year as it has increasingly focused on markets where it has a leading “multi-channel” position with a combined stores and internet business.

Over the last six months the firm has offloaded the loss-making e-commerce business PIXmania and operations in Turkey and partially exited Italy.

Chief executive Seb James has made no secret of his desire to increase the firm’s exposure to mobile phones.

Carphone Warehouse’s share price has risen 51 per cent over the past year as strong demand for smartphones and tablets in Britain has offset weakness in France.

US retailer Best Buy Co ended its joint venture with Carphone Warehouse in April last year by selling its stake back to the European firm, after plans to build a chain of European megastores collapsed due to weak consumer spending and competition from local chains.

Reuters